Assignment:
Use the daily interest rates, S&P 500 Index values, and exchange rates from the file: "data for assignment 5", to answer the following about the market risk of the assets in Part 1.
Using the RiskMetrics model:
1. a. Calculate the daily earnings at risk (DEAR) values for each asset if adverse movements are set at a 1.0% level?
b. What is the 5-day value at risk for each asset if the adverse movement is set at a 1.0% level?
2 a. Calculate the daily earnings at risk (DEAR) values for each asset if adverse movements are set at a 0.5% level?
b. What is the 5-day value at risk for each asset if the adverse movement is set at a 0.5% level?
Using back simulation:
3. a. Calculate the daily earnings at risk (DEAR) values for each asset if adverse movements are set at a 1.0% level?
b. What is the 5-day value at risk for each asset if the adverse movement is set at a 1.0% level?
4. a. Calculate the daily earnings at risk (DEAR) values for each asset if adverse movements are set at a 0.5% level?
b. What is the 5-day value at risk for each asset if the adverse movement is set at a 0.5% level?
5. a. For one of the assets, explain what the DEAR values in questions 8 through 10 mean.
b. For one of the assets, explain what the VaR values in questions 8 through 10 mean.