SEEM 5840 Term Project Rules
Spring 2024
Please independently finish a report by yourself, using all the available
resources except any help from other people. In the report, you should explain the
problem to be resolved, your way to tackle it and the final results. Note that answers
may not be unique and additional assumptions may be needed.
The length of the report should be in pdf format which is no less than 3 pages but
no more than 10 pages (A4 size). The file name should be in the format
SID_LastName_FirstName.pdf. It should be a summary and not contain too much
detail. Any additional details or supplementary materials can be submitted separately.
You do not need to submit your original programming codes if any. The report is
expected to contain the following:
1. Introduction: Briefly introduce the problem you are addressing. This section
should provide enough context for someone unfamiliar with your work to
understand the problem.
2. Approach: Describe the methods or approaches you used to solve the problem.
Be sure to explain why you chose these particular methods or approaches.
3. Results: Summarize your findings or results. This section should focus on the
outcomes of your work, not the process. Include any data or evidence that
supports your findings.
4. Observations: Discuss your observations from the results. This could include
any patterns, trends, or unexpected outcomes you noticed.
5. Conclusion: Summarize your work and its implications. This is where you
interpret your findings and explain what they mean in the context of the
problem you were addressing.
6. References: If you used any external sources, be sure to properly cite them in
this section.
Please submit your report electronically in the Blackboard website by
11:59pm April 20, 2024.
SEEM 5840 Term Project
Here we consider the yield curve of Chinese Government Bond (CGB).
Suppose that you need to manage a portfolio of CGBs (individual bonds listed
in the attached excel sheet)
a) At chinabond.com.cn, the official CGB yield curve publishes everyday in the
format of CGB yield levels for standard tenors (the curve construction details are
explained in the attached PDF as well). Please use the data to derive the portfolio value
for the year of 2020.
b) Design an approach to calculate the 10-day 99% value at risk (VaR) for the
portfolio for the year of 2020? Please explain the rationale for your design.
c) Conduct the backtesting for your VaR results for the year of 2020. How many
exceptions do you see? Please explain the reason for exceptions if any. How will you
improve your model’s performance in view of the exceptions?
Some additional explanations about the formula on the page 15 of China Bond
yield curve construction 2020.pdf. Where in the formula C.1, the !! is the tangent of y
at "!. There are a couple of ways to approximate this !!. It can be the average slopes of
the line 1 (connecting (#!"#, "!"#) and (#! , "!)) and line 2 (connecting (#! , "!) and
(#!$#, "!$#)). This is the numerical piece of the interpolation, rather than the market
information.