Question 2 (30 Marks) (a) You want to estimate the daily value at risk (VaR) for the stock returns of a public firm currently valued at $800 million. Using its stock returns data for the past 2 years (ordered in decreasing order, from highest daily return to lowest daily return), you have the daily stock returns as follows: 24.73%, 19.25% 17.83%, 15.87%, 14.56%, 13.73%, 12.25 % 11.83 %, 10.87%, 8.56%, 7.79% -9.41%, -10.43%, -11.91 %, -12.41 %, -13.43%, -14.28%, -15.76 %, -16.67%, -17.28%, -18.76%, -20.67%. Estimate the daily VaR and expected shortfall (ES) of the firm's stock return at the 98% confidence level using the historical simulation method. Assume we have 2 years' trading data for the bank and there are 250 trading days in a year (i.e., 500 trading days in total). Which one should be preferred to use by a risk manager? Why? (15 Marks) (b) Imagine you are a risk manager for the video-sharing mobile application TikTok. You have identified 9 risks within the company which are coded from R001 to R009 as shown in the table below. After the risk workshops with the relevant experts, you have assigned the risk impact and probability of occurrence to each risk in a scoring system based on the ordinal scale. You want to prioritise these risks and make action plans accordingly. Assume all the risks are realistic and relevant to the company. A larger value in the ordinal scale indicates a higher level of risk impact (probability of occurrence). Code Risk Risk Impact Probability of Occurrence Action R001 iOS updates 1 1 R002 Lost internet connections 6 4 R003 Copyright issues 7 3 R004 Data loss from cloud 8 5 R005 CEO resigns 9 5 R006 Data breaches 2 6 Page 3 of 5 FIN 8014BEF 2024-25 Assignment R007 New market entrants R008 Headquarter burglary R009 Government policy change Updated on: 12/2023 2 2 6 6 3 2 Choose a tool to conduct a corporate risk prioritisation analysis. Present your risk prioritisation analysis results (preferably in graph) and justify your choices of THREE key risks identified. What are your suggested actions to deal with each risk in terms of your risk prioritisation analysis results? (15 Marks)
Question 2 (30 Marks) (a) You want to estimate the daily value at risk (VaR) for the stock returns of a public firm currently valued at $800 million. Using its stock returns data for the past 2 years (ordered in decreasing order, from highest daily return to lowest daily return), you have the daily stock returns as follows: 24.73%, 19.25% 17.83%, 15.87%, 14.56%, 13.73%, 12.25 % 11.83 %, 10.87%, 8.56%, 7.79% -9.41%, -10.43%, -11.91 %, -12.41 %, -13.43%, -14.28%, -15.76 %, -16.67%, -17.28%, -18.76%, -20.67%. Estimate the daily VaR and expected shortfall (ES) of the firm's stock return at the 98% confidence level using the historical simulation method. Assume we have 2 years' trading data for the bank and there are 250 trading days in a year (i.e., 500 trading days in total). Which one should be preferred to use by a risk manager? Why? (15 Marks) (b) Imagine you are a risk manager for the video-sharing mobile application TikTok. You have identified 9 risks within the company which are coded from R001 to R009 as shown in the table below. After the risk workshops with the relevant experts, you have assigned the risk impact and probability of occurrence to each risk in a scoring system based on the ordinal scale. You want to prioritise these risks and make action plans accordingly. Assume all the risks are realistic and relevant to the company. A larger value in the ordinal scale indicates a higher level of risk impact (probability of occurrence). Code Risk Risk Impact Probability of Occurrence Action R001 iOS updates 1 1 R002 Lost internet connections 6 4 R003 Copyright issues 7 3 R004 Data loss from cloud 8 5 R005 CEO resigns 9 5 R006 Data breaches 2 6 Page 3 of 5 FIN 8014BEF 2024-25 Assignment R007 New market entrants R008 Headquarter burglary R009 Government policy change Updated on: 12/2023 2 2 6 6 3 2 Choose a tool to conduct a corporate risk prioritisation analysis. Present your risk prioritisation analysis results (preferably in graph) and justify your choices of THREE key risks identified. What are your suggested actions to deal with each risk in terms of your risk prioritisation analysis results? (15 Marks)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Question 2
(30 Marks)
(a) You want to estimate the daily value at risk (VaR) for the stock returns of a public firm
currently valued at $800 million. Using its stock returns data for the past 2 years (ordered
in decreasing order, from highest daily return to lowest daily return), you have the daily
stock returns as follows:
24.73%, 19.25% 17.83%, 15.87%, 14.56%, 13.73%, 12.25 % 11.83 %, 10.87%, 8.56%,
7.79% -9.41%, -10.43%, -11.91 %, -12.41 %, -13.43%, -14.28%, -15.76 %, -16.67%,
-17.28%, -18.76%, -20.67%.
Estimate the daily VaR and expected shortfall (ES) of the firm's stock return at the
98% confidence level using the historical simulation method. Assume we have 2 years'
trading data for the bank and there are 250 trading days in a year (i.e., 500 trading days in
total). Which one should be preferred to use by a risk manager? Why?
(15 Marks)
(b) Imagine you are a risk manager for the video-sharing mobile application TikTok. You
have identified 9 risks within the company which are coded from R001 to R009 as shown
in the table below. After the risk workshops with the relevant experts, you have assigned
the risk impact and probability of occurrence to each risk in a scoring system based on the
ordinal scale. You want to prioritise these risks and make action plans accordingly. Assume
all the risks are realistic and relevant to the company. A larger value in the ordinal scale
indicates a higher level of risk impact (probability of occurrence).
Code
Risk
Risk Impact
Probability of
Occurrence
Action
R001
iOS updates
1
1
R002
Lost internet connections
6
4
R003
Copyright issues
7
3
R004
Data loss from cloud
8
5
R005
CEO resigns
9
5
R006
Data breaches
2
6
Page 3 of 5
FIN 8014BEF 2024-25 Assignment
R007
New market entrants
R008
Headquarter burglary
R009
Government policy change
Updated on: 12/2023
2
2
6
6
3
2
Choose a tool to conduct a corporate risk prioritisation analysis. Present your risk
prioritisation analysis results (preferably in graph) and justify your choices of THREE key
risks identified. What are your suggested actions to deal with each risk in terms of your
risk prioritisation analysis results?
(15 Marks)
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