Generating distributions for calculating Value-at-Risk (VaR)

Question 1 [10 marks]:
Generating distributions for calculating Value-at-Risk (VaR)
In Chapter 12 of Hull, we learned that market risk is the risk related to the uncertainty of a financial institution’s earnings on its trading portfolio caused by changes, especially extreme changes, in market conditions such as asset prices, interest rates, market volatility and market liquidity. Value-at Risk (VaR) is used to assess (calculate) an FI’s exposure to market risk.
To calculate VaR, we first need to select the factors that drive the volatility of returns in the FI’s trading or investment portfolio. We can then use these risk factors to generate the forward distribution of the changes in the value of the portfolio. After we have generated the distribution, we can calculate the mean and the quantiles of this distribution to arrive at the portfolio VaR.
The change in the value of a portfolio is driven by changes in the market factors (or risk factors) that influence the price of each instrument in the portfolio.
The first part of Assignment Question 1 is to identify the various risk factors in a portfolio comprising:
 USD/EUR forward contracts
 USD/EUR call options
 Shares in various listed companies
 Bonds issued by government and corporate borrowers.
Having identified the risk factors that generate the volatility in the portfolio returns, the Analyst (‘you’) must then choose an appropriate methodology for deriving the forward distribution (of the changes in the value of the portfolio).
We learned in Chapters 13 and 14 of Hull that three alternatives are available.
These are the:
analytic variance-covariance approach (RiskMetrics);
historic (or back) simulation approach; and
Monte-Carlo simulation approach.

The second part of Assignment Question 1 is to:
 describe (or explain) each of the three alternative approaches;
 clearly highlighting the procedures – various steps – used in the three approaches to derive the forward distribution (of the changes in the value of the portfolio); and
 compare the advantages (‘pros’) and disadvantages (‘cons’) of the different approaches.
It is not expected that you would use ‘elaborate’ mathematics (as in Hull) to answer this part of the question. Good, clear and concise explanation (or description) in plain English would likely earn you a better mark than including equations or formulas that you may not fully understand!
Question 2 [10 marks]:
Bank capital and risk management regulations devised by the Basel Committee Chapters 15 & 16 of Hull described various bank capital and risk management regulations devised by the Basel Committee on Banking Supervision over the
past 25 years. A time-line of the development of the ‘BIS regulations” is as follows:
 July 1988
Basel I (the Basel Accord) issued
 December 1992
Basel I fully implemented
 December 1996
Market risk amendment issued
 December 1997
Market risk amendment implemented
 June 2004
Basel II issued
 December 2006
Basel II implemented
 December 2007
Basel II advanced approaches implemented
 July 2009
Revised securitisation and trading book rules issued
 December 2009
Basel III consultative document issued
 November 2010
G20 endorsed Basel III
 December 2011
Trading book rules implemented
 January 2013
Basel III implementation begins
 January 2019
Proposed full implementation of Basel III.
For Assignment Question 2:
 Describe (a) the requirements imposed on banks under the Basel Accord and (b) the key weaknesses of Basel I.
 Explain the principal market risk amendments introduced in 1996 and why were these considered necessary
 Describe the minimum capital requirements for credit risk introduced in Basel II and their calculation using the Standardised approach and the internal-ratings-based (IRB) approach.
 Describe the ‘enhancements’ to the Basel II framework introduced in response to the 2007-2009 global financial crisis.

Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.

Use the order calculator below and get ordering with now! Contact our live support team for any assistance or inquiry.

Type of paper Academic level Subject area
Number of pages Paper urgency Cost per page:

Purchase Guarantee

Why ORDER at

  • Educated and experienced writers.
  • Quality, Professionalism and experience.
  • Original Content writing.
  • Best customer support.
  • Affordable Pricing on orders.
  • Thorough research.
  • Ontime delivery of finished work.
  • 100% plagiarism free papers.

Reasonable Prices

  • To get the best quality papers isn’t cheap so don’t trust extremely low prices.
  • We can’t claim that we have unreasonably low prices because low prices equal to low quality.
  • Our prices are good and they balance with the quality of our work.
  • We have a Moneyback guarantee.

Original and Quality work

  • Our writers are professionals and they write your paper from scratch and we don’t encourage copy pasting.
  • All writers are assessed and they have to pass our standards for them to work with us.
  • Plagiarism is an offence and it’s never tolerated in our company.

Native Writers plus Researchers

  • Our writers are qualified and excellent and will guarantee the best performance in your order.
  • Our team has writers who have master's and PhD qualifications who can handle any assignment
  • We have the best standards in essay writing.

We have been in business for over 7 syears

  • We have always served our customers from all over the world and they have continued to order with us.
  • We value our customers since they have trusted us to do their assignments.
  • We are competent in our writing gained from experience over the years
  • Our company has 24/7 Live Support.

You will get

  •  Custom Admission Essay written by competent professional English writers.
  •  Free revisions according to our revision policy if required
  •  Paper format:  275 words per page, Times New Roman font and size 12, doublespaced text and1 inch margin
  •  On time delivery and direct order download
  •  Privacy guaranteed

We can help you:

  •  acquire a comprehensive professional presentation.
  •  get a unique and remarkable content as per your instructions.
  •  Get an additional portion that can be included to your existing presentation;
  •  turn your work in to an eyecatching presentation with well communicated ideas.
  •  improve your presentation to acquire the best professional standards.