Market Risk

Market Risk

This problem requires the use of excel spreadsheet that you should include with your answers
(clearly mark it with your last name). However, your final recommendation should be provided
in a format of a written document/memorandum (paste any figures/tables that support your
points into the report). In writing your report, whenever necessary, clearly refer to any specific
calculations in the spreadsheet. You do not need to provide detailed definitions of risk measures
as long as they follow the standard of what we used in class.
A large all-equity pension fund company with AUM of $500Billion that is closely following
S&P 500 index is facing a possibility of new regulatory changes in its management of market
risk. The new regulation would require capital charges to cover possible tail event losses based
on the realistic assessment of market risk of the company. A CRO of the fund is given a task to
assess a range of possible costs with regard to such charges.
It turns out that the CRO of the fund is an old buddy of yours from school times and regards you
as a world-class expert. With no hesitation she then turns to you for help. Given your close
friendship (and a hefty paycheck she offers) you eagerly decide to provide feedback.
In your recommendation, you may want to consider the following:
– access to daily price data of the S&P 500 index (attached data_exam.xlsx)
– various choices of risk measures
– specificity of the data in terms of its distribution and volatility structure
– tradeoffs between profitability and risk of the implemented charges
– possible adjustments in the portfolio strategy
– supporting your answers with graphs/tables