## Corporate and Financial Risk Analysis

** Corporate and Financial Risk Analysis**

The structure of the dissertation should be

Very brief introduction

10 Sections each concentrating on one question

Very brief summary

References (if applicable, optional)

- Give a general introduction on the topics of Financial Risk Analysis skills learnt in this module. You
__need to__choose one or two topic(s) for deeper discussion to include some additional literature reading, application examples and explain what you have gained the most by focusing on the topic(s).

- Carry out independent research on Altman’s Z-score as an investment value indicator — What is involved, how many types there are, how the scores are calculated, why it can be used as a value indicator. Use financial data provided by Yahoo Finance or Thomson Reuters on a few companies of your selection to cover all cases. Also, discuss the advantages and disadvantages of using such indicators for risk analysis purposes.

- There was a big housing bull market around the world over the last 30 years, you need to make some data backed investigation on the possible reasons for this. It is up to you to decide what data should be used in your study. You must involve quantified discussion, using some of the investigation methods such as regression analysis taught in this module. The historical UK house price data can be obtained from, for example,

http://www.nationwide.co.uk/about/house-price-index/download-data

- Design a retail business whose profit depends on a number of factors that can fluctuate randomly according some distributions and run a number of simulations on the model and plot the profit distribution histogram, and fit the histogram using different probability distributions as you see fit. Explain how you made your assumptions and the subsequent consequences on the outcome.

- Study the definition of hedge funds, look at the the investment strategies of hedge funds. Analyse the pros and cons of using hedge funds as an investment tool as you see them.

- Take out one of the strategies you discussed in 5) for detailed study. Must use asset/option prices from the real world in your illustration. The results must be in the form of price performance, in figures or graphs, using at least one statistical tools taught in the module.

- In the module we have described how to make investment decisions, in particular, we mentioned “Qualitative management screening: decide which projects, assets, initiatives or strategies are available, the list should meet management’s agenda. Most valuable insight is created at this stage”. Make a case study and explain the difficulties when we analysis financial risks with more than one factors.

- Study the definition of the following risk functions and how they are computed using MATLAB with concrete examples:
- VaR
- Expected Tail loss
- Omega
- Drawdown

Give your opinion on the pros and cons of using these risk measures.

- Carry out independent research on the coherence definition for risk functions, use concrete example to illustrate why coherence and incoherence are needed in different circumstances. Take a couple of risk functions to verify, using numerical examples, if they are coherent or incoherent.

- Select 20 different assets which you can download historical price data, explain the reason for selection. Construct a 20 variable VaR function, minimize it using MATLAB Optimization App. Choose sub-time intervals to compare the performance of thus formed portfolio against an equal-weight ETF using these 20 assets.

Remarks:

- There is no limit on the number of words but should avoid over/under explanation, figures and data presentation tables are more powerful tools in risk analysis.
- Programs in EXCEL, MATLAB can be used but must be displayed clearly.

Reading List

G Loffler and P N Posch, Credit risk modelling using Excel and VBA, John Wiley & Sons, 2007

M Jackson and M Staunton, Advanced modelling in finance using Excel and VBA John Wiley & Sons, 2001

R S Tsay, Analysis of financial time series, 2nd edition, Wiley Series, 2005

S Allen, Financial risk management, John Wiley & Sons, 2003

C Alexander, Market Risk Analysis I-IV, John Wiley & Sons, 2008.