Assessment Dissertation for Corporate and Financial Risk Analysis

Part 1: General study:

• Carry out independent research on Altman’s Z-scoreas an investment value indicator — What is involved, how many types there are, how the scores are calculated, why it can be used as a value indicator. Use financial data provided by Yahoo Finance or Thomson Reuters on a few companies of your selection to cover all cases.

Based on what you have learned, do you think you can propose a new kind of score to study investment value? Discuss and justify.

• There was a big housing bull market around the world over the last 25 years, what do you think is the reason for this? (We need some data backed discussion, it is up to you to decide what data should be used in your study). The historical UK house price data can be obtained from, for example,

http://www.nationwide.co.uk/about/house-price-index/download-data

• Design a retail business whose profit depends on a number of factors which can fluctuate randomly according some rules and run a Monte Carlo simulation on it and plot the profit distribution histogram, and fit the histogram using different probability distributions as you see fit. Explain how you made your assumptions and consequences on the outcome. (See Lecture 2-2)

Part 2: A specific risk analysis topic in investment:

• Carry out independent research on the definition of hedge funds, study the investment strategies of hedge funds.

Must explain how such strategies can be monitored and executed in real life situations using examples. Examples should involve at least one real asset with prices downloaded from Yahoo Finance or from Thomson Reuters.

• Study the quantitative aspects of hedging, using options and/or complimentary assets (eg. Oil and airline) to see if such strategies make sense. Must use asset prices from real world in illustration. The results must be performance comparison, in figures or graphs, using the at least one statistical tools taught in the module, not general statements.

• Explain the role of risk analysis in portfolio protectionand how such analysis should be implemented in practice.

• Carry out independent research on the coherence definition for risk functions, use concrete example to illustrate why coherence and incoherence are needed in different circumstances.Take a couple of risk functions to verify, using numerical examples, if they are coherent or incoherent.

• Study the definition of the following risk functions and how they are computedusing MATLAB with concrete examples:
• VaR
• Expected Tail loss
• Omega
• Drawdown

• Select (a total of 20 different assets) some traditional US large companies and some investment funds ideally involving emerging markets (which you can download historical data), analyse the reason for selection and construct a 20 variable VaR function, minimize it using MATLAB Optimization Tool Box. Choose sub-time intervals to compare the performance of thus formed portfolio against an equal-weight ETF using these 20 assets.

Remarks:

• Must write as a dissertation, with introduction, computation and conclusion, also need to quote references.
• There is no limit on number of words but should avoid over explanation, figures and data presentation tables are more powerful tools in risk analysis.
• Programs in EXCEL/VBA, R or MATLAB can all be used but must be displayed clearly.
• Hand in deadline is as indicated in study-direct, please do not ask for further delay in deadline, if we change the deadline, it will have to be moved to an earlier date.