Learning Exercise 3

Value at Risk

Instructions: Complete this assignment by downloading the data and then answering the questions in this word document. Then submit it electronically on class.pace.edu website.

Note: Submission is set only before the deadline. Late assignments can't be submitted.

1. Get the daily closing prices data for SPDR Gold Shares (GLD), Financial Sector SPDR Fund (XLF) and SP500 (^GSPC) from finance.Yahoo for the period 2005-01-01 to 2021-12-31. Create the returns variable for each series and plot graphs.

For each asset (GLD, XLF, and ^GSPC) assume that you have a position of $1,000,000. What was the 1% one day Value at Risk for each asset when the market opened on Monday, January 3, 2022?

1. Using the quantile from one year history
2. Using the quantile from five-year history
3. Using the quantile from ten-year history
4. Using the quantile from the full data set
5. Using the normality assumption and a GARCH(1,1) model
6. Using the GJR-GARCH model with normality
7. Using the GJR-GARCH model with bootstrapped residuals

2. Go to VLAB (http://vlab.stern.nyu.edu/) and

A. find the volatility forecasts one day and one year ahead for the following assets using the GJR-GARCH model. Make sure to state the date when you get the forecasts from VLAB.

1. S&P500
2. Ibovespa Brasil Sao Paulo Stock Exchange Index
3. Barclays US Aggregate Government Index
4. Tesla
5. MBIA
6. Euro Exchange rate
7. iShares Cohen & Steers REIT ETF
8. Bitcoin to US Dollar

B. Describe why these numbers are consistent with the information based description of asset volatility for each of the assets.