Risk and Return , Risk Management

In a report not to exceed five double-spaced typewritten pages, analyze the results obtained from the three simulations performed, identify the source of the differences, and select (and justify your selection of) a single strategy to manage the risk-return relationship.

Then, graph the final risk-return relationships achieved by your three simulation results on a hypothetical efficient frontier presented in two-dimensional space (with portfolio expected return measured on the y-axis and portfolio risk (standard deviation) measured on the x-axis).

The essential purpose of the term project is to demonstrate how a commercial bank''s asset and liability structure can be viewed as a portfolio. In a manner analogous to an investment portfolio for which the underlying components have been selected and to which efficient diversification principles have been applied, the expected return and risk characteristics will be altered by varying the weights of these underlying components. In this application, the portfolio consists of long (assets) and short (liabilities) positions. Consistent with the objective function of maximizing shareholder wealth (and within the constraints imposed), the separate expected return—risk relationships achieved should demonstrate the tradeoffs arising from varying the weighting schemes used for the bank''s assets and liabilities. Where the bank resides on the efficient frontier implied by these weighting schemes is determined by management''s degree of risk aversion.

If the "naïve" weighting scheme is performed correctly (that is, in a manner consistent with the same overall constraints applied to the other two weighting schemes), the expected return to risk ratio will not exceed the ratio achieved for the maximization simulation and the risk measure (standard deviation) will not fall below that standard deviation measure achieved for the risk-minimization simulation. The plot of the efficient frontier should correspond to the corresponding graph provided by the course text; demonstrating the risk-return tradeoffs achieved.

You should devote your analysis to an assessment of the results you achieved and what the meaning and implications of these results are. The analysis should be conceptually based; in other words, do not focus the bulk of your treatment on the steps you implemented with the computer. The purpose of this portion of the term project is for you to demonstrate your conceptual understanding of the steps you have implemented and results you have obtained; consistent with the principles of portfolio expected return and risk presented by the course material.

I have a spreadsheet; which goes along with this project. Please let me know how, I could attach it to the question.
Posted Date: 11/8/2012 8:57:49 AM | Location : United States







Related Discussions:- Risk and Return , Assignment Help, Ask Question on Risk and Return , Get Answer, Expert's Help, Risk and Return Discussions

Write discussion on Risk and Return
Your posts are moderated
Related Questions
1. You are to analyze:  [1] internal financial options offered to employees as a benefit, [2] the external financial options that are offered by markets to outside investors who ma

DQ #1: How has fair value accounting challenged leveraged instruments? DQ #2: What are the fair value standards that need to be followed in the U.S. under GAAP and international

State about the Management Risk Management, all said and done, is made of people who are mortal, fallible and capable of making a mistake or a poor decision. Errors made by

Question 1: Explain role of the project manager throughout a project life cycle with reference to the following. (a) Setting up a project team (and the factors he has to con

Evaluate risk management models • ERM approach • ISO31000:2009 • M_O_R Framework • GRC Capability Model

A former alumna of the University, who originated Racoon.com ((ticker: COON1), recently passed away. In her Will, she named X-University as the beneficiary of her assets, which was

Question : (a) Every company has its own idea about how to organise itself and its work. Different companies doing the same work may have different organisation structures and

Question: a) Using illustrative and numerical example, differentiate between speculation and arbitraging in the context of foreign exchange market. b) One year borrowing and

Question: DGI Investors is responsible for managing the investment portfolio of Carnegie University Trust which has a market value of $ 100m. The new appointed chairman of t

I need a report on Measurement of Total Risk. Can you please assist me for Measurement of Total Risk report for about 2500 words?