125.811 ****Advanced ****Risk ****Analytics
Summer ****semester, ****2024 - ****2025
Individual ****Assignment : ****Market ****Risk ****and ****Credit ****Risk ****Modelling
(30 ****marks)
Please prepare your modelling report with related tables, figures, interpretations, and explanations based on the following tasks. You need to submit one word or PDF file for your report. Please copy and paste your Eviews result tables into your report.
Part ****I - ****Market ****Risk ****Modelling (21 marks )
GARCH ****and ****EWMA ****models ****(Review Week 4 Practice Notes 1)
-
Goto www.nasdaq.com and download five-year historical daily closing prices of a stock of your choice.
-
(3 ****marks) Calculate the logarithm returns for the stock. Analyse and discuss the stock return characteristics, including return mean, median, minimum, maximum, skewness, kurtosis, serial correlation, and volatility clustering.
-
(4 ****marks) Based on analyses in Step 2, build an appropriate GARCH model for the return volatility and explain why the model specification is appropriate. (Note **that : you **need **to capture **the **serial **correlation **of **the **return **level **using **ARMA **model) .
-
(3 ****marks) Based on the analyses in Step 2, establish an appropriate EWMA return volatility model.
-
(3 marks) ****Forecast one day volatility using GARCHand EWMA model based on above steps 3 and 4.
Dynamic ****Conditional ****Correlation - ****Bivariate ****GARCH ****model ****(Review Week 4 Practice Notes 2)
-
Using one pair of data (including the spot and futures prices) from the 代写125.811 Advanced Risk Analytics givendata file on stream (file name: Data ****for ****assessment 2) . Look at the first tab of the file for the assigned data for your group (students in one group would use the same data, but the assignment is individual assignment) .
-
(4 marks) ****Estimate their dynamic conditional correlation using the DCC-MGARCH(1,1) model.
-
(4 marks ) Based on the estimated dynamic conditional correlation ( pt) and estimated standard deviation of the spot (σs,t) and futures (σF,t), calculate the dynamic optimal hedge ratio as follows:
Part ****II - Credit ****Risk ****Modelling (9 marks )
- Employ the Mortgage . csv ****and lgd . csv ****datasets downloaded from
www.creditriskanalytics.net/datasets.ht…
-
(5 marks) ****Build the best Probability of Default model you could and assess its performance.
-
(4 ****marks) Find a relevant literature on probability of default model. Explain and discuss the probability of default model in that paper and compare that model with your model (no more than one page of writing) . W.X：codinghelp
