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Assessment Essay/Dissertation

for Corporate and Financial Risk Analysis

The 10 questions below should be addressed in separate sections in the dissertation.

Anatomy of the dissertation: font 12pt, approx. 40 lines per page. Include a cover page with module name and student no. Include a list of references. Include an appendix with MATLAB codes used in the above-mentioned sections.

1)    Give  a general  introduction on the topics of  Financial  Risk Analysis skills  learnt  in this module. You need to choose one or two topic(s) for deeper discussion which includes some  additional  literature  reading  and  application  examples.  Explain  what  you  have gained the most by focusing on the topic(s).

2)    Carry  out  independent  research  on Altman’s Z-score as an  investment value  indicator: What is involved? How many types are there? How are the scores calculated? Why can it be used as a value indicator? Use financial data provided by Yahoo Finance or Thomson Reuters on 2-3 companies of your selection to cover all cases. Also, discuss the advantages and disadvantages of using such indicators for risk analysis purposes.

3)    There was a big housing bull market around the world over the last 30 years. You need to conduct a data-backed investigation on the possible reasons for this. It is up to you to decide what data should be used in your study. You must involve quantified discussion, using some of the investigation methods, such as regression analysis taught in this module.

The historical UK house price data can be obtained from, for example, from

https://www.gov.uk/government/statistical-data-sets/uk-house-price-index-data-downloads- december-2021

4)    Design a retail business, whose profit depends on a number of factors that can fluctuate randomly according to some distributions. Run a number of simulations on the model, plot the profit distribution histogram, and fit the histogram using different probability distributions as you see fit. Explain how you made your assumptions and the subsequent consequences on the outcome.

5)    Study the definition of hedge funds, look at the the investment strategies of hedge funds. Analyse the pros and cons of using hedge funds as an investment tool as you see them.

6)    Take  out  one of the strategies you discussed  in 5) for a detailed study. You  must  use asset/option prices from the real world in your illustration. The results must be in the form of price performance, in figures or graphs, using at least one statistical tools taught in the module.

7)    In the  module we  have  described how to make investment decisions, in particular, we mentioned “Qualitative management screening: decide which projects, assets, initiatives or strategies are available, the  list should  meet  management’s agenda.  Most valuable insight is created at this stage”. Make a case study and explain the difficulties when we analyse financial risks with more than one factors.

8)    Study the  definition of the following  risk functions and  how they are computed using MATLAB with concrete examples:

l  VaR

l  Expected Tail loss

l  Omega

l  Drawdown

Give your opinion on the pros and cons of using these risk measures.

9)    Carry  out  independent  research  on  the  coherence  definition  for   risk  functions,  use concrete example to illustrate why coherence and incoherence are needed in different circumstances. Take a couple of risk functions to verify, using numerical examples, if they are coherent or incoherent.

10) Select 20 different assets, for which you can download historical price data, explain the reason for selection. Construct a 20 variable VaR function,  minimize it  using  MATLAB. Choose sub-time intervals to compare the performance of thus formed portfolio against an equal-weight ETF using these 20 assets.

Remarks:

1)    There is no limit on the number of words but should avoid over/under explanation, figures and data presentation tables are more powerful tools in risk analysis.

2)    Programs in EXCEL/VBA, R, MATLAB or any other computational language can be used but must be displayed clearly.

3)    Hand in deadline is as indicated in CANVAS, and it cannot be moved.

4)    Questions are of equal weight, therefore, worth 10% each.