case study 2

Risk Measurement Case Study 2

Louis Branthomme Hadrien N’Dong Nzue Ali Ighirouayour Nada Alami-Louati

What is the ex-ante risk profile of the augmented portfolio at Thursday 28-Oct-2021 close and how does this compare against the default mix ? How do the tail risks of the portfolio change after implementing the active positions ? How is this portfolio expected to perform in stressed market scenarios and how does this compare against the default mix ?

Table of Contents

1. Individual Asset Analysis

2. Augmented Portfolio vs. Default Portfolio

3. Estimation and Comparison of the risk measures

4. Evaluation of the new risk profile

5. Evaluating tail risk

6. Stress Testing

Individual Asset Analysis

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Augmented Portfolio vs. Default Portfolio

Estimation and comparison of the risk measures

EW

EWMA

GARCH

VS

Evaluation of the new risk profile

Relative performance

Over Time Test

Bias Test

Distribution

EWMA vol: Kurtosis = 2.35 Skewness = -0.56 GARCH vol: Kurtosis = 2.93 Skweness = -0.52

For the EWMA volatility : stdev(z)=1.05 For the GARCH volatility : stdev(z)=0.82

Step 3

Step 2

For EWMA volatility, MRAD = 0.056 For GARCH volatility, MRAD = 0.193

EWMA vol: ∑QL = -21365.21 GARCH vol: ∑QL = -21925.42

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All criteria encourage us to choose EWMA volatility.

Evaluating tail risk

Stress Tests

4 Risk Factors

• Equities
• Oil
• Gold
• Interest Rates

Equities (2008 Financial Crisis)

Oil (2020 pandemic)

Gold (2020 pandemic)

Interest Rates (1994 bond market crisis)

Thanks!