Econ 413 Market Risk Forecasting and Control 2023
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
Market Risk Forecasting and Control
(Econ 413)
Resit
Electronic submission due on 25 August 2023 by 12 noon
Guidelines
1. Do not include R codes.
2. Word limits: no more than
(a) 300 words in Exercise 1
(b) 150 words in Exercise 2
(c) 250 words in Exercise 3
3. Only report the figures and tables you comment.
4. For support with submissions refer to John Sharples ([email protected])
Exercise 1
Comment on the following statement and motivate your answer.
Let VaR (p) be the value at risk for holding a given portfolio over a certain period of time for some probability level p. Letting q 
p be another probability level, does
(1 − p)VaR (p) < (1 − q)VaR (q)
imply that p > q? True, False or more conditions are required to make any comment? [35 marks]
Exercise 2
1. Discuss the choice of the number of Monte Carlo replications in simulation option pricing.
2. Illustrate the method by pricing a European call option with initial spot price equal to 25 GBP, annual volatility equal to 0.3, annual interest equal to 0.05, one year to expiration and strike price equal to 26 GBP. [30 marks]
Exercise 3
1. Download Apple and Starbucks stock prices in the sample that starts on January 1, 2008 and ends on your birthday in 2021. 1 Use a Hill estimator for the tail index of their percentage log returns and use a graphical method to cross-check.
2. Consider now a portfolio with weights (0.3, 0.7) on the two assets considered before and estimate its tail index. Based on your results, how does the risk of this portfolio compare with that of the individual stocks? [35 marks]
2023-08-25