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

Black Rock Investors is managing the pension fund of Virgin Atlantic. Sir Richard Branson wants to assess the risk of the portfolio following the Euro crisis. During a discussion

ashjadsgdjhs

Question 1: (a) What are Upper Limb Disorders? (b) Describe seven main factors that are likely to increase the risk of upper limb disorders at work and suggest ways for redu

Q. Show Security market line? The CML represent the equilibrium relation between the expected return and standard for efficient portfolio. But it does not indicate how individu

Determine the Measurement of Risk There are three methods: (1) Volatility: Volatility may be described as range of movement (or price fluctuation) from the expected lev

What is Risk management Risk  management  is  to  recognise  the  risks  to  which  company  is  exposed  to,  consider  the trade-off between risks and expected returns, and c

There are 5 primary steps in assessing risk in the workplace wrt to H&S, identify 3 and discuss the what actions should be taken to manage or negate the risks posed - The sect

1. You are given the following long-run annual rates of return for alternative investment instruments: US Government T-Bills 3.5% Large-cap common stocks 12.1% Long-

How can I calculate 10-day 99% VaR for portfolio comprising two banks by using the Historical Simulation Approach ?