ETF5952 Quantitative Methods for Risk Analasis
Assignment 3
General guidelines:
• This assignment covers topics from workshops 1 to 10.
• This assignment will be graded out of 100 points, which will then be scaled to a mark out of 20
when calculating your final grade.
• This is a group assignment.
– Each group member will also be required to complete an anonymous peer evaluation
survey. You will be asked to rate your group member’s participation and effort. These
surveys will be used to adjust your assignment marks. Further details on the survey will be
released via Moodle in due course.
• The assignment has two parts.
– Part 1: each group will complete a written report (in PDF, maximum 4 pages) and
presentation slides based on the report (in Powerpoint or PDF, maximum 10 slides).
Submit both files through Moodle using the link titled “Assignment 3 Submission” by 26
May, 4:30pm.
– Part 2: during the week 12 workshop (28 May, 5pm -8pm), each group will nominate two
members to deliver an oral presentation (~10 minutes). The presentation will be followed
by a brief Q&A session, where the presenters should be prepared to answer questions from
the assessors.
Instructions:
• In this assignment, you will analyze the risk associated with investing in a selected stock and
communicate your findings.
1. Data collection
– Download daily prices of Tesla Inc (ticker: TSLA) spanning 6 years from 12 May
2019 to 11 May 2025) using quantmod in R. Transform the adjusted-close price to daily
returns expressed in percentages. Provide a brief description of the stock. Briefly
discuss the industry and sector in which the company operates. Present descriptive
statistics of the returns, such as mean/variance/skewness/kurtosis.
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2. Model building
– Divide the returns into a 3 year in-sample period and a 3 year out-of-sample period.
Specifically, the in-sample period would be from 12 May 2019 to 11 May 2022, and the
out-of-sample period would be from 12 May 2022 to 11 May 2025. Choose threemodels
to fit the returns in the in-sample period. Restrict the mean equation to the constant
conditional mean, i.e., use rt = µ+ εt, εt = σtzt, and choose your specification for the
conditional variance σ2t and the distribution for the shocks zt. Describe the models you
choose, state your reasons for choosing these models, and compare the in-sample fit of
your models.
– Choose two models (out of the three models you used for the in-sample period) and
one estimation scheme (fixed, rolling or recursive window) to conduct one-step-ahead
out-of-sample volatility/variance forecasts. Justify your choice of the two models
and the estimation scheme. Compare the out-of-sample performance of the volatil-
ity/variance forecasts from the two models using one forecast evaluation method that
you consider appropriate.
3. Risk outlook:
– Select one model and forecast the 10-day 1% Value-at-risk and expected shortfall
for holding the stock between 11 May 2025 and 25 May 2025. Summary your results
by providing an outlook for the riskiness of the stock.
• For the written report:
– The report should be well-written and logically organized. Structure your report using
the following sections: Title; Introduction; Risk models; and Risk outlook. Include clear
headings for each section, and separate paragraphs. Use appropriate graphs, equations,
and tables to illustrate key findings (do not use screen shots of equation or tables from R
output). Do not include any R code in your report.
– Your report should not exceed 4 pages (font size 12).
• For the presentation:
– The presentation slides should be based on the written report (do not include materials
that are not in your report). It should include one title page. Keep text minimal; focus on
visual clarity and verbal delivery.
– The number of slides, including the title page, should not exceed 10.
– Rehearse to stay within the 10-minute time limit. Be prepared to answer questions during
a brief Q&A session immediately following your presentation.
Evaluation Criteria:
• Quality of the risk analysis (50%)
• Organization and presentation of the report (25%)
• Presentation delivery and Q&A performance (25%)
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