Question
Download prices for the SPY ETF, dating between 2020-01-01 and 2022-09-30 Compute the daily log-returns over this sample period (no need to report) Assume that
Download prices for the SPY ETF, dating between 2020-01-01 and 2022-09-30 Compute the daily log-returns over this sample period (no need to report) Assume that the price follows a GBM. Calibrate the model and report both mu and sigma (hats) After calibration, simulate the future price over a one-year period based on the closing price from 2022-09-30. Create at least 1000 simulations and provide a couple of plots as a summary. What is the one-year VaR(0.05)? Repeat the above tasks using weekly returns and report the VaR(0.05). How do the results from tasks 5 and 6 compare? Should it matter whether it is daily or weekly (recall Lab 1)? Elaborate. Finally, suppose that you work with the weekly data. Let us consider some sensitivity analysis and address the following questions: How much does the one-year VaR(0.05) increase if the annual volatility increases by 5%? Is the relationship between one-year VaR(0.05) and the annual volatility linear? Elaborate.
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