Market Risk

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You recently read the paper by Sollis (2009) where the author provides introductoryoverview of Value at Risk (VaR) and its weaknesses. This encouraged you tounderstand more about VaR techniques and on their application. You have thereforedecided to study more on VaR and apply related techniques to compute the riskexposure faced by a portfolio of real-world financial securities.In this section of your report, you are therefore required to critically discuss market riskmeasurement using Value at Risk techniques and discuss the new developments,displaying your awareness of the methods and limitations by presenting clearly howyou derived your results.Your portfolio should consist of a minimum of five real-world companies and the lengthof your sle period should be no longer than five years and must end as of 30thNovember 2021. Please note your answer should not just be an illustration of themethods but you should aim to provide interpretations and comparisons capturing yourdata and latest published research.(1,500 words, 50 Marks)*Sollis, R. (2009). Value at risk: a critical overview. Journal of Financial Regulation andCompliance.B. Credit RiskAnalyse a portfolio of loans consisting of 3 companies of your choice withcharacteristics shown in table below. For exle, if you choose company 1 to beTesla, it will have a maturity of 5 years, repayment value of 12 million and annualinterest rate of 6%. All computations must be carried out according to suchcharacteristics.Loan Company Name Maturity Repayment Value atMaturity $mAnnualInterest1 Company 1 5 12 6%2 Company 2 4 10 7%3 Company 3 3 8 5%In your report, you should clearly state the composition of your portfolio (i.e., fill in thetable above with the names of three real-world companies).Assume that all three loans are senior unsecured debt denominated in US dollars andthat the analysis is conducted on 30th November 2021. The loan will be repaid atmaturity date. Clearly state any assumptions you make in your estimations.Using CreditMetrics (full implementation) and KMV, you are required to computerelative VaR and Expected Shortfall with MonteCarlo simulation for the portfolio aboveat time horizons of 1-year and 2-year periods and confidence interval of 99%.Interpret, compare, and discuss your results critically. Do a reality check on all theabove calculations. Are your results according to your expectations? Why or why not?(1,500 words, 50 Marks)Created in Master PDF Editor3Mapping to Programme Goals and ObjectivesProgramme (Level) Learning Outcomes that this module contributes to:Knowledge ; Understanding:• Assess knowledge of contemporary professional practice in business andmanagement informed by theory and research. [LO1.1]• Appraise knowledge of business and management to complex problems inprofessional practice in order to identify justifiable, sustainable and responsiblesolutions [LO 1.2]Intellectual / Professional skills ; abilities:• Critique creative and critical thinking skills that involve independence, understanding,justification and the ability to challenge the thinking of self and others [LO 2.2.]Personal Values Attributes (Global / Cultural awareness, Ethics, Curiosity) (PVA):• Critique their personal skills and attitudes for progression to post-graduate contextsincluding professional work, entrepreneurship and higher-level study [LO 3.2]Module Specific Assessment CriteriaKnowledge ; Understanding:• Develop knowledge and understanding of international banking regulation, credit,foreign exchange and market risks. [MLO1]• Critically evaluate the measurement models and the management issues in the contextof the regulatory requirements within the banking and finance sector. [MLO2]Intellectual / Professional skills ; abilities:• You will develop the quantitative as well as qualitative skills while measuring andmanaging the credit and market risks. [MLO3]Personal Values Attributes (Global / Cultural awareness, Ethics, Curiosity) (PVA):• You will be made aware of the risk facing international financial markets and how youcan equip management with the knowledge and expertise to implement strongerorganisational controls to address these risks. [MLO4]

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