Compare and Contrast the Variance, VaR and CVaR (Expected Shortfall) as Risk Measures: Risk Management Assignment, TUD

Assessment 1 Details:

Required:

You may pick 1 only of the following topics/questions. Your essay/answer should be 1000 words maximum.

Topic – Risk Measures

Compare and contrast the Variance, VaR and CVaR (Expected Shortfall) as risk measures, citing the relevant advantages and disadvantages of each measure. You should also consider the property of coherence and whether each measure satisfies this property. In your answer, you should suggest which of the measures is best from a small investor risk management perspective, using illustrative examples or empirical evidence as appropriate.

Topic – Hedging

Discuss the relative advantages and disadvantages of a hedging program for a company that has a significant exposure as part of its normal operations to commodity or foreign exchange price risk. In your answer, you should refer to relevant case studies or journal articles and cite them in support of your arguments.

Topic – Debt and Financial Distress

Discuss whether financial distress or bond ratings downgrades are predictable. In your answer, you should consider both balance sheet risk measures as well as the historical performance of the bond rating system and make reference to empirical evidence as appropriate.

Assessment 2 Details:

Required:

You are required to write a report in which you compare and contrast the return and risk/volatility characteristics of each the following:

• S&P500 stock market index
• Barrick
• EURO/USD

You should analyze and compare the assets both in terms of the underlying economics as well as making use of appropriate statistics and risk measures including an estimation of the Volatility (Standard Deviation), Value at Risk and CVaR. You may use tables/figures/graphs to enhance your report. You should also run a simple GARCH (1,1) model and comment on the output and interpretation of your results including the volatility persistence.