Chemical Warfare Ex WWI and Anthrax

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.

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 2020-12-31. 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 4, 2021?

The time series plots of three assets price level and returns are as follows.

Using the quantile from one year history

Using the quantile from five-year history

Using the quantile from ten-year history

Using the quantile from the full data set

Using the normality assumption and a GARCH(1,1) model

Using the GJR-GARCH model with normality

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.

S&P500

Ibovespa Brasil Sao Paulo Stock Exchange Index

Barclays US Aggregate Government Index

Tesla

MBIA

Euro Exchange rate

iShares Cohen & Steers REIT ETF

Bitcoin to US Dollar 

This is volatility Prediction for Tuesday, November 29th, 2021.

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

According to the model of the volatility, different asset classes have different volatility characteristics. Government bond index has the least volatility because the yield of bond only changes within a narrow range than other assets. Euro, as a foreign currency also has a small volatility because currency only reacts to less frequent country-wide and macroeconomic news.

Among all equity related assets, S&P500 index has the lowest volatility of 16%. This is because index has diversification effects. REIT Index has a relatively higher volatility because they are exposed to real estate sector. Brazil index has a higher index volatility because the emerging markets are exposed to more shocks. Tesla and MBIA have higher volatility because the individual stocks are exposed to more frequent and sudden shocks. Bitcoin has the highest volatility because it is purely speculative financial instruments under blurred regulation.