need help with my risk management class

Discussion in 'Growing and Managing a Business' started by docahk, Nov 5, 2010.

  1. docahk

    docahk
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    Hi all,

    I am taking a basic risk management class and have been doing some practice problems provided by my teach. I am having difficulties with the following one:

    You are presented with following investments:

    Stock Shares Feb 5th closing price
    Ebay 1000 13.21
    Atvi 2000 9.73
    Cstr 500 24.06
    Gld 300 90.12
    Dhy 10000 1.78

    You borrowed and sold:
    Stt for 1000 shares @ 27.54
    Nstr for 500 shares @ 60.34
    Debt/borrow 50000 @5%

    1) Calculate the VAR of these securities individually as well as a portfolio (95 and 99% confidence leve)
    a) 10 days starting feb 5th….include the fluctuation of feb 5th as the start of you calculations
    b) compare var derived in the above with reality including your interpretations and analysis

    ebay historical:
    Date Close Adj Close*
    Feb 20, 2009 12.18 12.18
    Feb 19, 2009 12.16 12.16
    Feb 18, 2009 12.49 12.49
    Feb 17, 2009 12.32 12.32
    Feb 13, 2009 13.19 13.19
    Feb 12, 2009 13.38 13.38
    Feb 11, 2009 13.35 13.35
    Feb 10, 2009 13.35 13.35
    Feb 9, 2009 13.85 13.85
    Feb 6, 2009 13.63 13.63
    Feb 5, 2009 13.21 13.21

    Atvi historical:
    Date Close Adj Close*
    Feb 20, 2009 9.40 9.27
    Feb 19, 2009 9.38 9.25
    Feb 18, 2009 9.59 9.46
    Feb 17, 2009 9.40 9.27
    Feb 13, 2009 9.70 9.57
    Feb 12, 2009 9.26 9.14
    Feb 11, 2009 9.48 9.35
    Feb 10, 2009 9.62 9.49
    Feb 9, 2009 9.84 9.71
    Feb 6, 2009 9.96 9.83
    Feb 5, 2009 9.73 9.60

    Cstr:
    Date Close Adj Close*
    Feb 20, 2009 28.01 28.01
    Feb 19, 2009 28.56 28.56
    Feb 18, 2009 27.92 27.92
    Feb 17, 2009 28.33 28.33
    Feb 13, 2009 27.68 27.68
    Feb 12, 2009 22.59 22.59
    Feb 11, 2009 23.21 23.21
    Feb 10, 2009 23.33 23.33
    Feb 9, 2009 23.92 23.92
    Feb 6, 2009 24.84 24.84
    Feb 5, 2009 24.06 24.06

    Gld:
    Date SClose Adj Close*
    Feb 20, 2009 97.80 97.80
    Feb 19, 2009 95.77 95.77
    Feb 18, 2009 96.91 96.91
    Feb 17, 2009 95.45 95.45
    Feb 13, 2009 92.55 92.55
    Feb 12, 2009 93.17 93.17
    Feb 11, 2009 92.29 92.29
    Feb 10, 2009 90.21 90.21
    Feb 9, 2009 88.32 88.32
    Feb 6, 2009 89.59 89.59
    Feb 5, 2009 90.12 90.12

    dhy:
    Date Open Close Adj Close*
    Feb 20, 2009 1.39 1.48 1.20
    Feb 19, 2009 1.61 1.49 1.21
    Feb 18, 2009 1.62 1.55 1.26
    Feb 17, 2009 1.74 1.70 1.38
    Feb 13, 2009 1.79 1.80 1.46
    Feb 12, 2009 1.79 1.81 1.47
    Feb 11, 2009 1.80 1.84 1.47
    Feb 10, 2009 1.81 1.79 1.43
    Feb 9, 2009 1.78 1.81 1.45
    Feb 6, 2009 1.79 1.78 1.42
    Feb 5, 2009 1.88 1.81 1.45
    Feb 12, 2009 $ 0.027 Dividend

    Any help or advice is much appreciated. Also if anybody could give me some suggestions on books to read to gain a better understanding of risk management i would appreciate that as well.

    Thank you
     
  2. ArcSine

    ArcSine
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    Greetings, Docahk! Congrats on taking up an interesting field of study.

    For a very basic overview of VAR, check out Wiki at http://en.wikipedia.org/wiki/Value_at_risk

    Beyond that, a Googling of "value at risk" will give you a boatload of hits for your reading pleasure.

    For a more complete coverage of risk management (and a decent discussion of VAR in particular) I can recommend Marrison's The Fundamentals of Risk Measurement. While you're checking that one out at Amazon, also have a look at some of the works from Philippe Jorion. I haven't personally read any of his stuff, but he's certainly been prolific in the field, and his name is usually on the short list of top authors in risk management.

    If your math and microecon theory is up to the task, you might enjoy Economic and Financial Decisions Under Risk, by Eeckhoudt, et. al. (Despite that one disgruntled reviewer at Amazon) it's been one of my favorites on my shelf. Risk management is much more than VAR, of course, and EFDUR looks primarily at some of the other facets of risk mgmt.

    Best of luck with your studies!
     
  3. docahk

    docahk
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    Thank you for the response ArcSine. I am on amazon as we speak ordering the Marrison book. I thank you for the recs. I have a math background but no real finance, econ, or business background. I am taking an intro to risk management class and I find the subject very interesting and am thinking of possibly pursuing a Masters in Financial Engineering to incorporate my math background with finance. My goal is to "self teach" myself some of the finance theories that would give me an easier transition into the finance world and more specifically Risk Management.
     

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