EFIMM0049 Financial Modelling
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EFIMM0049
Financial Modelling
March 2023
Overview
• This summative coursework represents 60% of the final mark for the unit.
• The coursework is in the form of an assignment.
• Penalties will apply if the coursework is submitted late.
• The coursework is a piece of groupwork. You will be required to make a plagiarism statement and your submission will be tested for originality.
• The maximum word allowance is 4,000 words, excluding title page, question titles, tables and figures with accompanying notes, formulas and references. Note that this is a strict word limit. You must include a word count at the start of your assignment.
Coursework requirement
Group assignment
You are a fund manager considering an investment in the following US stocks: Caterpillar (CAT), Johnson and Johnson (JNJ), Walmart (WMT), Abbot Laboratories (ABT), Microsoft (MSFT) and Apple (AAPL). Analysts within your company have provided you with views about the future performance of two of the stocks. In particular, they believe that relative to their market-implied expected returns, JNJ will outperform by +0.20% per month and ABT will outperform by +0.15% per month.
1. Using these views, construct the optimal active portfolio of the six stocks assuming that the current date is 31 December 2021. You should assume that the expected market return is 0.75% per month, and that the fund has an investment horizon of one year. You can use the most recent values for the market capitalizations of the six stocks for calculating market portfolio weights.
2. Compare the performance of the optimal active portfolio with that of the market value weighted portfolio and the tangency portfolio over the following 12 months (i.e., January 2022 to December 2022). Note that the relative performance of the active portfolio will not affect your mark for the assignment.
3. Estimate the one-year 99% value at risk and conditional value at risk of the portfolio as at 31 December 2021.
Notes on Completion of the Assignment
In writing up your report, you should adhere to the following guidelines:
• Your report should be professionally presented. You could assume that it will be read by the senior management of the company and so it needs to be neat, properly structured and clearly and concisely written. This is an important skill in practice, and you should take this opportunity to develop your skills in this area.
• You should use the following structure for your report:
Title page: this should include the group number, the student numbers of all members in the group and the word count
Introduction: this should summarise the task, discuss the motivation and context, describe the overarching approaches and outline the structure of your report. Method: this should define the mathematical calculations that you undertake in order to implement the model.
Data: this should define the data items to be used in the model, the sources of the data and, where appropriate, the sample period and frequency. You should also report summary statistics of your data
Results: this should present the results of the analysis, including any sensitivity analyses. You should provide a critical discussion of your results relating them to the objective of the assignment.
Conclusion: this should summarise the main findings of the model, critically evaluate any shortcomings of the data and method, and offer some suggestions for future work
References: these should be alphabetically listed and properly formatted using the APA or Harvard formats
• You should not include appendices in your report
• Tables and charts should be accompanied by detailed explanatory notes. Look at any paper in a good finance journal to see how to present a table of results (I have put a sample of a Journal of Financial Economics paper in the Assessment Information section on Blackboard, but feel free to look at others also).
• Do not include Excel screen prints; You do not need to describe the specific steps you took in Excel or the functions used.
• You should pay attention to the formatting of your report, particularly with respect to line spacing, paragraphs and section titles.
• You should use Equation Editor in Microsoft Word to format any equations; You should define any variables that are used in equations
Additional Information
Your assignment must be submitted on Blackboard before the date and time stated above. If you have any queries when submitting your work, please contact the Accounting and Finance Postgraduate Student Administration Office (acfi-pgt@bristol.ac.uk)
If you require a coursework extension, please complete the online form. You must provide supporting evidence for an extension request. Please see the University website for information on how to submit an extension request.
You must submit assessed work before the deadline. Work that has been submitted late without extenuating circumstances is penalised by a reduction of ten marks (out of 100) for each 24-hour period after the agreed deadline, not including UK public holidays or University closure days. If the work is submitted late such that at least five such 24-hour periods have elapsed, the mark awarded will automatically default to zero. (Please see section 17 of the University Regulations and Code of Practice for further details)
If you experience circumstances that may impact your ability to submit the essay by the deadline, please submit extenuating circumstances via the online form. Please see the University website for information on how to submit extenuating circumstances.
The University rules and guidance about plagiarism and cheating, and how they are dealt with by the university in the regulations.
The University rules and guidance about Marking Criteria and Scales via this link.
2023-03-10