Question 2. Value at Risk ( 30 marks) Assume that you are an Australian fund manager holding a portfolio of Australian stocks who initially allocated AUD100m to the following stocks equally on the 1st of October 2014. This portfolio comprises Expedia Group (XETRA: E3X1 GF); Shimizu Corporation (TSE/TYO: 1803); Johnson Matthey PLC (LSE: JMAT); Insurance Australia Group Ltd (ASX: IAG) and Oracle (NYSE: ORCL). Required: a) Calculate the performance of each of these stocks (and the portfolio) over the period (see below). Explain your answer. Show all working. b) Calculate the Value at Risk (VaR) of your portfolio using both the historical method and variancecovariance method under the 95% confidence level. Explain your answer. Show all working. c) Diversification is a well-accepted risk management technique for dealing with market risk. i. Comment on how diversified the portfolio is. Use calculations to support your answer. ii. Identify the two most extreme negative returns for your portfolio. Identify the events responsible for these returns and explain why they had such a large impact on the stocks in your portfolio. Comment on your answer in relation to your diversification discussion from (a). d) Suppose the fund manager also has AUD100m in 6-month Australian Treasury Bills (Bloomberg code: BBSW6M) and AUD250 m of USD currency holdings (BBG code: AUD Curncy). Compute the VaR for the combined equity, bond and currency porffolio using the variance- covariance method under the 95\% confidence level. Comment on any differences you observe when compared with your calculations from part (b) above. Question 2. Value at Risk ( 30 marks) Assume that you are an Australian fund manager holding a portfolio of Australian stocks who initially allocated AUD100m to the following stocks equally on the 1st of October 2014. This portfolio comprises Expedia Group (XETRA: E3X1 GF); Shimizu Corporation (TSE/TYO: 1803); Johnson Matthey PLC (LSE: JMAT); Insurance Australia Group Ltd (ASX: IAG) and Oracle (NYSE: ORCL). Required: a) Calculate the performance of each of these stocks (and the portfolio) over the period (see below). Explain your answer. Show all working. b) Calculate the Value at Risk (VaR) of your portfolio using both the historical method and variancecovariance method under the 95% confidence level. Explain your answer. Show all working. c) Diversification is a well-accepted risk management technique for dealing with market risk. i. Comment on how diversified the portfolio is. Use calculations to support your answer. ii. Identify the two most extreme negative returns for your portfolio. Identify the events responsible for these returns and explain why they had such a large impact on the stocks in your portfolio. Comment on your answer in relation to your diversification discussion from (a). d) Suppose the fund manager also has AUD100m in 6-month Australian Treasury Bills (Bloomberg code: BBSW6M) and AUD250 m of USD currency holdings (BBG code: AUD Curncy). Compute the VaR for the combined equity, bond and currency porffolio using the variance- covariance method under the 95\% confidence level. Comment on any differences you observe when compared with your calculations from part (b) above
