EFB344: The Market Risk - National Australia Bank shares - The Stock Portfolio - Management Assignment Help

Assignment Task:

Overview
The task you are given is to estimate the market risk for a holding of20,000 National Australia Bank shares (NAB.ax) and 5,000 Rio Tinto shares (RIO.ax), held on 6 February 2020 (you are working out the risk position assuming that you own these shares before the open of trading that day).  You will do this by estimating the Value-at-Risk for the stock portfolio.  This will require you to choose the best VaR model by backtesting several methods to determine the most reliable for the task at hand.

Description

This leaves you with four (4) possible models that could be used to provide the VaR measure asked for above.  You must choose the most appropriate model and report the associated VaR.  To inform your decision of which to use, you are going to consider the recent historical performance of the four models in calculating 1 day VaR at the confidence level of 99%.  You will do so by first examining the frequency of instances when the VaR was exceeded by the observed return over the prior five years.

You will then evaluate the appropriateness of these frequencies over time relative to the Basel traffic light levels discussed in lectures (over the same five years).  Based on this performance, select the best model and report the required VaR(5, 99%) for 6 February 2020.

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