Revision Due Week 9 and worth 180 points.Now that you have completed a first draft of this essay, it is time to carefully review the feedback your instructor has provided. Then, make revisions and sub

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FIN 465

Innovations in Contemporary Finance

Project 5: Value at Risk (VaR)

In this project you will calculate Value at Risk based on Historical Simulation and based on Model Building.

You have recently started an investment company. You have invested in your stock (from Project 1) and in the Dow Jones Industrial Average (by buying shares of DIA ETF). You portfolio size is $1,000,000 and you have invested 60% in your stock and 40% in DIA.

Calculate VaR of your portfolio for the next 10 days with 99% confidence.

Basel rules dictate to keep 3 times this amount. Therefore, how much cash must be kept in your company for the next 10 days in order to satisfy the Basel requirement?

Note:

Download adjusted closing price data for your stock and for DIA from finance.yahoo.com. Use 3500 daily return history. That would correspond to about 15 years. So download starting from February 2004. You will be using 3500 most recent daily returns. So, keep the most recent 3501 prices for DIA and your stock.

Utilize the Excel files VaR_ModelBuilding and VaR_HistoricalSimulation to get the answer from each approach.

Your final answer should be the average of the two VaR values.

Include the printouts of the relevant sections of the Excel files. Provide a paragraph of summary of what you have done.