BAK 2102- Risk Analysis

BAK 2102- Risk Analysis
INDIVIDUAL PROJECT (30%) – Tentative
DUE DATE: June 01, 2020
Leading Excellence in Academics
Instructions:
1) This is an individual project.
2) Word limit: 2000 words (excluding graphs, tables, charts and all Appendices)
3) Assignment carries 30% weight of the final assessment. The assignment carries 100
marks.
4) Assignment must be submitted on time (online softcopy on Turnitin software and
hardcopy to be handed to your Instructor) to be considered for evaluation on 01/06/2020
at 3PM. Turnitin details are as follows:
Class ID:
Password:
5) Late submission will be penalized as:
a. 5% deduction each day for the first six (6) days late submission
b. Assignment will not be graded or accepted after 6 days.
6) If you are facing any problems, please make sure to contact lecturer before the due date.
7) Assignment should be typed with BIBF Coursework Cover Sheet showing:
i. Title of the Course/Module.
ii. Class
iii. The name and ID of the student
8) BIBF Dealing Room resources must be utilized in order to fully complete this project.
Check your schedule on student whiteboard. In addition, where appropriate, you MUST
refer to other relevant journals/publications in support of your work.
9) Photocopying, cheating or any other academic dishonesty will not be accepted.
10) All references must be provided (Harvard style).
PROJECT DETAILS
Portfolio Simulation & Risk Measurement
Due Date: 01/06/2019
In order to apply concepts learned in class and gain practical experience, each student will assume the
role of a fund manager and to design and execute an appropriate strategy to maximize the portfolio’s
return and measure its risk over the five (5) week investment horizon. The clients of the fund have
specified capital appreciation as the main investment objective and have no short-term cash needs.
This project will help you learn about the ‘real-life’ market mechanism of portfolio risk measurement,
including the terms and terminology of trade execution and the general market environment.
Concentrate on the differences between assets (e.g., risk/return characteristics, trading rules, capital
requirements) and take advantage of the opportunity to learn about order submission, transaction
costs, etc., while managing the money as it would be your own.
This assignment is worth 30% of total grade. While the emphasis for the project is on your education
and not on portfolio return, you need to be careful in taking excessive risk to maximize return.
Performance is measured on a risk-adjusted basis and the goal is to maximize your risk-adjusted return,
defined as the Sharpe ratio of your portfolio.
Your challenge will be to design and execute an investment strategy that satisfies the client over the 5
weeks investment period and create and measure the risk of a virtual investment portfolio with initial
funding of USD 1,000,000. Each student will use (mainly) Portfolio Simulation program to manage and
track the investment portfolio. The program acts like a discount broker and provides trading
environment very similar to the real world. You will be charged commission for each trade. Total
number of transactions is limited to 200 for the simulation period.
Portfolio construction can be from Common stocks that are traded in NYSE, and Nasdaq-AMEX stock.
Trades can be submitted by the simulator web page.
The final portfolio must contain securities from different sectors to maintain a level of diversification.
Students are free to adjust their portfolios based on their capital market expectations. However, the
justification and economic rationale for the asset allocation and selected securities should be provided
in the report.
Portfolio Management Rules
• To help in managing your risk exposure. Each position should not exceed 10% of your total assets.
• You will trade in stocks. Make sure you understand quite well the instrument you are buying.
• Make sure you familiarize yourself with the simulation program trading rules and risk
measurement techniques.
Report Writing:
Write portfolio performance reports. Use of a spreadsheet program (Excel) is a must.
A. First Report:
1. Discuss your beginning portfolio strategy and security selection process:
▪ Link your market strategy with general market outlook for the year.
▪ What index are you going to try to beat with your stock picks? Why did you pick that
index?
2. For each security in your initial portfolio, calculate and comment on the following:
▪ Price level and percentage change so far
▪ A measure of historical returns. (5 years of monthly returns – can be obtained from
http://quote.yahoo.com)
▪ Measures of the security’s risk: `
(a) The standard deviation
(b) Beta
3. For the whole portfolio, calculate and comment on the following:
▪ total portfolio gain/loss in dollar and percentage terms
▪ Total portfolio Beta
▪ Find the portfolio expected return, using the T-bill rate as the risk-free rate and 12% as the
market return
▪ The correlation matrix
B. Second Report:
▪ Revaluate your risk level by forecasting where the market is heading in the future. At this
stage you might have to sell or buy securities.
1. For each new trade in your portfolio, calculate and comment on the following:
▪ Justification of the trade
▪ Expectation
2. For the whole portfolio, conduct performance analysis:
▪ Measure absolute performance
▪ Measure performance relative to the benchmark portfolio
▪ Measure performance relative to the risk-adjusted expected return, based on your
portfolio’s average beta
▪ Measure the portfolio’s excess return: the difference between the actual and the
expected.
3. Conclusions
▪ Conclude with a critique of your portfolio – what would you have done differently knowing
what you know now? This does not mean using perfect hindsight to decide what stocks
you should have purchased! Rather, suppose you were starting today. Given your current
knowledge of the stock market compared to earlier in the semester, what would you have
done differently in terms of your portfolio strategy and your security selection process?
What lessons from the game were useful?
Grading will be based solely on the logic and consistency of your selections and reports. You
will not be graded on the basis of investment performance; rather, you will be expected to:
▪ set investment goals
▪ track your portfolio’s performance, and that of the benchmark portfolio, each week
▪ prepare for classroom discussion of important events in the markets that may affect the
risk or return performance
▪ produce performance reports as required.
Sources of Information
▪ CNBC: http://www.cnbc.com/
▪ Wall Street Journal: www.wsj.com
▪ New York Times: www.nyt.com
▪ Investopedia: www.investopedia.com
▪ MorningStar: www.morningstar.com
▪ Financial Visualizations: www.finviz.com
▪ Yahoo Finance: finance.yahoo.com
Grading Scheme (out of 100)
Category Grade Primary Marking Criteria Secondary Marking Criteria
Distinction
70+
Outstanding
• Comprehensive knowledge
• Detailed understanding of the subject area
• Extensive background study
• Highly focused answer and well structured
• Logically presented and defended arguments
• No factual/computational errors
• Original interpretation
• New links between topics are developed
• New approach to a problem
• Excellent presentation with very accurate communication
• Exceeds expectations for most primary criteria
• Complete command of subject and other relevant areas
• Ideas/arguments are highly original
Excellent
• Exceeds expectations for some primary criteria
• Complete command of subject
• Ideas/arguments are highly original
Good
• Meets all primary criteria
• Command of subject but with minor gaps in knowledge
• Ideas/arguments are mostly original
Meets requirements of
Class
• Meets most but not all primary criteria
• Command of subject but with some gaps in knowledge
• Ideas/arguments are mostly original
Merit
60-69
Good • Strong knowledge
• Understands most but not all of the subject area
• Evidence of background study
• Focused answer with good structure
• Arguments presented coherently
• Mostly free of factual/computational errors
• Some limited original interpretation
• Well known links between topics are described
• Problems addressed by existing methods/approaches
• Good presentation with accurate communication
• Exceeds expectations for some primary criteria
• Command of subject but with gaps in knowledge
• Some ideas/arguments are original
Mid-Level
• Meets all primary criteria
• Strong factual knowledge and understanding
• Ideas/arguments are well presented but few are original
Meets requirements of
Class
• Meets most but not all primary criteria
• Strong factual knowledge with minor weaknesses in understanding
• Most but not all ideas/arguments are well presented and few are
original
Credit
50-59
Good within the Class
• Knowledge of key areas/principles
• Understands the main elements of the subject area
• Limited evidence of background study
• Answer focused on question but also with some irrelevant
material and weaknesses in structure
• Arguments presented but lack coherence
• Has several factual/computational errors
• No original interpretation
• Only major links between topics are described
• Limited problem solving
• Some weaknesses in presentation and accuracy
• Exceeds expectations for some primary criteria
• Strong factual knowledge with some weaknesses in understanding
• Ideas/arguments are limited but are well presented
Mid-Level
• Matches all primary criteria
• Moderate factual knowledge with some weaknesses in
understanding
• Ideas/arguments are limited with weaknesses in logic/presentation
Meets requirements of
Class
• Matches most but not all primary criteria
• Moderate factual knowledge with several weaknesses in
understanding
• Ideas/arguments are limited with weaknesses in logic/presentation
Category Grade Primary Marking Criteria Secondary Marking Criteria
Pass
40-49
Good within the Class • Knowledge of key areas/principles only
• Weaknesses in understanding of the subject area
• Limited evidence of background study
• Answer only poorly focused on question and with some irrelevant
material and poor structure
• Arguments presented but lack coherence
• Several factual/computational errors
• No original interpretation
• Only major links between topics are described
• Limited problem solving
• Many weaknesses in presentation and accuracy
• For PGT – Insufficient to fulfil the associated learning outcomes
• Exceeds expectations for some primary criteria
• Moderate factual knowledge with several weaknesses in
understanding
• A few ideas/arguments are presented but with weaknesses
Mid-Level
• Matches all primary criteria
• Limited factual knowledge with several weaknesses in
understanding
• Very few ideas/arguments are presented
Meets requirements of
Class
• Matches most but not all primary criteria
• Limited factual knowledge with many weaknesses in understanding
• Very few ideas/arguments are presented and with errors in
logic/presentation
Fail
39 and below
Good within the Class • Insufficient to fulfil the associated learning outcomes
• No evidence of relevant knowledge or understanding
• No evidence of background study
• Answer relies on irrelevant material and lacks a coherent structure
• No arguments presented or arguments are not relevant to the
assessment
• Many factual/computational errors
• No attempt at interpretation
• No links between topics are described
• No attempt to solve problems or to address the assessment brief
• The presentation is very weak containing many inaccuracies
• Exceeds expectations for most primary criteria
• No evidence of knowledge/understanding
• Only limited evidence of an attempt to answer the question
Mid-Level
• Exceeds expectations for some primary criteria
• No evidence of knowledge/understanding
• Very limited evidence of an attempt to answer the question
Meets requirements of
Class
• Matches all primary criteria
• No evidence of knowledge/understanding and/or evidence of
misunderstanding
• No attempt to answer/address the question

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