Session 1 hand in

David Skovmand, skovmand@math.ku.dk

31. oktober 2023

See uploaded Excel sheet here https://www.dropbox.com/scl/fi/c5bsosqrfginvrcwd7zh3/

DataSetforHandin1.xlsx?rlkey=2n849t1t1x2l9i8adlrdtfisd&dl=0. This contains pri-
ces and returns of Amazon and Tesla on a daily frequency. The return and price is adjusted
to include dividends and other distributions so you don't have to worry about that. Assu-
me you can earn a 0.5% risk free rate annually which you may convert to a daily rate by
simply dividing by 253 i.e. rf = 0.005/253 throughout the assignment.
1. Consider an investment of 1 mio USD in Amazon. Assume you are able to buy the
stock at the price at the beginning of the (daily data) sample at the adjusted close
price of 76.521004 per share (assume you can buy any fraction of a share). What
would your investment be worth at the end of the sample?
2. What would it be worth if you invested the same amount in the risk free asset?
Comment on the two numbers.
3. Calculate estimates for the mean, standard deviation, LPSD, skewness and kurtosis
for the full dataset of daily returns on Amazon. Comment on the numbers.
4. Calculate the Sharpe ratio using the values
√ from the previous question. Annualize
the Sharpe ratio by multiplying it with 253. Comment on the number.
5. Assume that you want to maximise expected utility using the standard mean-variance
utility function. Assume that your risk aversion parameter is equal to A=6. Use the
estimates from question 3 to nd the optimal portfolio consisting of Amazon and the
risk free asset.
6. Use direct estimation (see slides) to calculate 1% VaR for the daily return series
(VaR=Value-at-Risk i.e estimate the lower 1% quantile of the return distribution
using daily data) as well as the 1% Expected Shortfall. Comment on the values.
7. Calculate the 1% VaR and 1% Expected Shortfall using the normal distribution
instead. Comment on the dierences between these number sand the answer you
found in the previous question.
8. Consider now the daily dataset of returns on Tesla. Calculate again estimates for the
mean, standard deviation, LPSD, skewness and kurtosis. Comment on the numbers.

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 9. Use the CORREL function to estimate the correlation between the return rate of
Amazon and the return rate of Tesla. Does the value indicate there will be a benet
from diversication if you include both Tesla and Amazon in your portfolio?
10. Using the relevant estimates from questions 3, 8 and 9 to nd the portfolio with the
smallest variance consisting only of Tesla and Amazon. Report the weights, standard
deviation and expected return of the portfolio.
Please upload an excel spread sheet where your results are properly presented. But
please make sure you do a proper write up where you try to explain your results in words.
This should ideally be done using a text box or similar in Excel. Alternatively in a dierent
accompanying word le. If you upload more than one le please collect the les in a .zip
or .rar le. Your answers will count for 20% of your total grade.
The Deadline is November 12th 2023 23:59