Choose a major European, Asian or Australian stock index, stock with the market capitalisation at least $100B, bond, bond index, c

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Choose a major European, Asian or Australian stock index, stock with the market capitalisation at least $100B, bond, bond index, currency exchange rate or a commodity.

Choose a major European, Asian or Australian stock index, stock with the market capitalisation at least $100B, bond, bond index, currency exchange rate or a commodity.

Download the corresponding daily closing prices for a time period not less than 3 years preceding the start of the financial crisis in 2007 and calculate the corresponding daily log-returns.

Check if daily log-returns appear stationary in the chosen time period.

Check if daily log-returns appear to have a heavy-tailed distribution.

Explain the estimation method presented in the MSO4110 module and critically compare advantages and disadvantages of non-parametric vs. parametric methods of estimating measures of risk when data appears heavy-tailed.

Using the estimation method presented in the MSO4110 module, estimate for daily log-returns in the chosen time period (a) the tail index and (b) Expected Shortfall (conditional Value-at-Risk).

Choose a shorter interval of time (not less than 3 months) within the chosen time period, for which you consider evaluation of risk particularly important, and calculate measure of risk m_TA. Explain the method of m_TA calculation.

Elaborate what implications your findings might have for an investor on the eve of the financial crisis.

[60 marks]

The coursework is a piece of individual research. It aims to let you demonstrate skills and techniques you’ve learned in this module. Your knowledge of these techniques will be assessed.

A possible structure may consist of

1. Introduction and review of methods.

2. Results.

3. Conclusions.

4. References.