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

Ask an Expert

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

Write your message here..

Related Questions

Disaster recovery plan, Devise a disaster recovery plan • Business Impact A... Devise a disaster recovery plan • Business Impact Analysis • Treatment Strategies: o Risk Avoidance o Risk Reduction o Risk Transfer o Risk Retention • Ingredients of a disaster re

Define value at risk as a measure of market risk, Black Rock Investors is ... 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

Identify the entities for managing risks and controls, QUESTION Mybank ... QUESTION Mybank Commercial Bank is a global conglomerate with operations in more than 10 countries and with more than 25,000 employees across the globe. The bank's technology t

Determine the current market risk premium, Case: You are a partner in a... Case: You are a partner in a first time PE fund. Against all chances, you have been able to raise $300M from investors. The business plan based on which you got the funds from

Option Pricing, #question.Price a European call and put option using expli... #question.Price a European call and put option using explicit, implicit and cranck nicholson methods in Matlab or R.

Fixed income risk management, Fixed Income Risk Management You are a... Fixed Income Risk Management You are asked in this assignment to insure the value of a bond portfolio during the (in hindsight) turbulent 8-month (or 245-day) period from 1

Decision tree project, You work for a company that sells expensive equipmen... You work for a company that sells expensive equipment to other companies. The marketing director has closed on a substantial sale (for your company) but the customer has requested

Beta, #queThe management of Nelson plc wish to estimate their firm’s equity... #queThe management of Nelson plc wish to estimate their firm’s equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it w

Define the meaning of return, Define the meaning of Return Return is th... Define the meaning of Return Return is the amount or rate of produce, profits, proceeds which accrues to an economic agent from an undertaking or investment. It's a reward for

Determine about the bull-bear market risk, Bull-Bear Market Risk Thi... Bull-Bear Market Risk This risk arises from the variability in the market returns resulting from alternating bull and bear market forces. Ø when security index rises fair