+1443 776-2705 panelessays@gmail.com

 

Interconnected Risk Exercise — Assess contagion risk in an investment portfolio

Please read the following and see attachment for the excel

Description: You are the same risk analyst in a wealth management company who helped one of the wealth managers win the account of the Vanderbilt Family Office. Your liquidity analysis of the FO’s existing and proposed investment portfolios was favorably received and the proposed portfolio changes were made.

Now the FO’s Administrative Manager has asked you to stress test the new portfolio in a Global Markets Correction scenario, highlighting the positions which are vulnerable to contagion between more than one risk category.

Instruction: Study the price changes of the investments listed in Attachment A between 31 March 2019 and the 30 June 2019 stress test. Based on your knowledge of each type of investment’s market, credit and liquidity risk characteristics, enter your rationale for the existence and magnitude, or non-existence, of contagion risk against each position in the shaded Contagion Risk Assessment column. Then, answer the following questions, giving brief reasons for each of your answers.

1.Which fixed income position(s) show the most contagion risk in the stress test?

2.Which equity position(s) show the most contagion risk in the stress test?

3.Which alternative investment* position(s) show the most contagion risk in the stress test?

(* = Commercial Real Estate and Hedge Funds)

VBFO new port

Attachment A
VANDERBILT FAMILY OFFICE INVESTMENT PORTFOLIO – NEW PORTFOLIO
31-Mar-19 Expected Days to Liquidate or Close Out Expected Projected
Description Quantity Price FX US$ Value Yield 1 2 5 10 30 60 180 360 Yield Volatility Liquidity VaR Stress Liquidity Metric Notes CONTAGION RISK ASSESSMENT
Fixed income
Sovereign Q, EUR, 1,000,000, 31-Dec-2028, 1.5%, 360/360 3 102.12 1.09 3,341,228 1.25% 3.3 1.25% 0.75% 1 0.30% 3% 1 day: up to USD 10mn 2 days: up to USD 20mn Credit rating Aa2/AA Contagion between market, credit and/or liquidity risk: Yes/No? Briefly state the rationale for your assessment
Bank R, USD, 2,000,000, senior unsecured, 31-Dec-2023, 2.0%, 180/360 3 101.19 1.00 6,071,520 1.75% 1.0 4.0 1.1 1.75% 0.35% 2 0.25% 5% 1 day: up to USD 1mn 2 days: up to USD 5mn 5 days: up to USD 10mn 10 days: up to USD 20mn Credit rating A2/A This bond has moderate yield and liquidity in modest amounts
Bank S, USD, 5,000,000, Coco, 31-Dec-2037, 6%, 180/360 1 0.97 1.00 4,850,000 6.25% 2.0 2.9 10 days: up to USD 2mn 30 days: up to USD 5mn Credit rating Baa3/BBB- This Coco bond has limited liquidity in modest amoounts but a very high yield
Company T, CAD, 1,500,000, 31-Dec-2021, 2.75%, 360/360 5 0.96 1.39 5,166,367 3.50% 5.2 3.50% 2.65% 5 0.65% -10% 5 days: up to USD 5mn 10 days: up to USD 15mn Credit rating Ba1/BB+ This high yield bond has reasonable liquidity in moderate amounts
US Treasury, USD, 3,000,000, 0%, 31-Dec-2038 5 0.59 1.00 8,890,200 2.65% 5.0 3.9 2.65% 0.55% 1 0.15% 2.5% 1 day: up to USD 5Mn 2 days: up to USD 20mn Credit rating Aaa/AA+ This bond has good liquidity in large amounts and a moderate yield
NJ State Transit Authority, USD, 1,000,000, 15-Jun-2024, 3%, 180/360 4 100.47 1.00 4,018,840 2.75% 1.0 3.0 2 days: up to USD 1mn 5 days: up to USD 5mn 10 days: up to USD 10mn 30 days: up to USD 20mn Credit rating A3/A- This muni bond has a low yield compared to others with similar liquidity
IL State GO, USD, 1,000,000, 3-Jan-2024, 5%, 180/360 4 1.10 1.00 4,398,400 4.50% 1.0 3.4 2 days: up to USD 1mn 5 days: up to USD 5mn 10 days: up to USD 10mn 30 days: up to USD 20mn Credit rating Baa1/A- This muni bond’s yield and liquidity in moderate amounts are typical of the sector
MI Financial Authority, USD, 1,000,000, 1-Jun-2022, 5%, 180/360 4 1.08 1.00 4,304,400 4.50% 1.0 3.3 2 days: up to USD 1mn 5 days: up to USD 5mn 10 days: up to USD 10mn 30 days: up to USD 20mn Credit rating A- This muni bond’s yield and liquidity in moderate amounts are typical of the sector
Equities
Company V, common stock, Nasdaq 175,000 39.42 1.00 6,898,500 0.00% 5.0 1.9 0.00% 22% 1 4.25% -15% 1 day: up to USD 5Mn 2 days: up to USD 10mn 5 days up to USD 20 mn This stock has high growth potential and good liquidity but zero yield
Company Y, common stock, TSX 470,000 24.94 1.39 8,432,950 1.50% 1.0 1.0 6.4 1.50% 12% 2 2.50% -7.5% 1 day: up to USD 1Mn 2 days: up to USD 2mn 5 days up to USD 10 mn 10 days: up to USD 15mn This stock has moderate yield and liquidity in moderate amounts
Company X, common stock, Nikkei 175,000 6,233 120.36 9,062,604 2.50% 5.0 4.1 2.50% 34% 4 6.75% -15% 5 days: up to USD 5Mn 10 days: up to USD 10mn This stock has a good yield and moderate liquidity in modest amounts
Company W, common stock, Euronext 125,000 46.30 1.09 6,311,848 0.25% 5.0 1.3 0.25% 15% 2 3.50% -7.5% 2 days: up to USD 5mn 5 days: up to USD 10mn 10 days up to USD 20mn This stock has a low yield but moderate liquidity in large amounts
Currencies Shorts
Sell EUR, Buy USD, 1.05, 31-Dec-2019 3,000,000 1.08 1.00 (87,000) 0.50% 2.75% 1 1.25% -5% 1 day: up to USD 20mn
Sell CAD, Buy USD, 1.35, 30-Jun-2019 5,000,000 1.38 1.00 (130,000) 0.20% 1.75% 1 1.30% -5% 1 day: up to USD 20mn
Derivatives Shorts
Put, SPX, strike 1,800, 5-Jul-19 60 1,021.97 1.00 (61,318) 66% 1 8.30% 30% 1 day: up to USD 2mn
Put, AEX, strike 395, 5-Jul-19 150 441.82 1.09 (72,277) 28% 1 6.95% 25% 1 day: up to USD 2mn
Put, Nikkei 225, strike 15,000, 5-Jul-19 90 72,500.00 120.36 (54,212) 32% 1 5.75% 25% 1 day: up to USD 2mn
Put, GSPTSE, strike 13,000, 5-Jul-19 125 764.54 1.39 (68,754) 1 day: up to USD 2mn
Commercial Real Estate
Ownership of office tower located at 240 E Monroe in Chicago 0.30 30,000,000 1.00 9,000,000 4.75% 9.0 180 days: up to USD 10mn 360 days up to USD 20mn Can be sold in lots of USD 10mn This CRE investment has a moderate yield but limited liquidity and represents only one portion of the commercial real estate sector
Ownership of West Hills shopping mall in Pittsburgh 0.11 45,000,000 1.00 5,000,000 5.25% 5.0 180 days up to USD 10mn Can be bought in lots of USD 5mn This CRE investment has average yield and liquidity and represents a different portion of the commercial real estate sector
Ownership of luxury apartment building in Denver 0.07 75,000,000 1.00 5,000,000 5.85% 5.0 180 days up to USD 10mn Can be bought in lots of USD 5mn This CRE investment has better than average yield and liquidity and represents a different portion of the commercial real estate sector
Hedge Funds
Z Investment Advisors Macro Fund 5,000,000 0.95 1.00 4,750,000 3.75% 4.8 60 days: up to USD 5mn This hedge fund has typical liquidity but not a very high yield
Q Investment Advisors Value Fund 3,000,000 1.02 1.00 3,060,000 5.80% 3.1 180 days: up to USD 10mn This hedge fund has average yield and liquidity for the sector
R Investment Advisors CRE Fund 2,000,000 1.00 1.00 2,000,000 4.95% 2.0 180 days: up to USD 10 mn This hedge fund adds CRE expsoure with average yield and liquidity for the sector
Total 100,083,294 3.17% 15.3 18.8 28.7 6.1 2.9 4.8 24.1 0.0 Total ERROR:#REF! ERROR:#REF! 100.6
WAV Yield 15% diversification applied
Projected cumulative liquidity 15.3% 34.1% 62.8% 68.8% 71.7% 76.4% 100.5% 100.5%
INVESTMENTS TO CONSIDER YIELD & LIQUIDITY ANALYSIS
31-Mar-16 Expected Days to Liquidate or Close Out Expected Projected
Description Quantity Price FX US$ Value Yield 1 2 5 10 30 60 180 360 Yield Volatility Liquidity VaR Stress Liquidity Metric Notes
Fixed income
Equities
Commercial Real Estate
Hedge Funds
Total 290,837,134 1.09% 42.8 54.7 90.7 28.9 39.3 75.0 253.2 361.0 Total ERROR:#VALUE! ERROR:#REF! 291,310,696
New WAVY 15% diversification applied
New projected cumulative liquidity Old WAVY 14.7% 33.5% 64.6% 74.5% 88.0% 113.8% 200.7% 324.6%
Existing projected cumulative liquidity 1.89% 17.0% 36.9% 59.7% 78.2% 86.3% 91.0% 100.0% 100.0%
+ = =
Rationale for acceptability of liquidity risk in new portfolio
The liquidity profile of the new portfolio exceeds the family’s requirement for at least 30% of the portfolio to be liquid in 2 days.

VBFO new port stress SV

Attachment A
VANDERBILT FAMILY OFFICE INVESTMENT PORTFOLIO – NEW PORTFOLIO – STRESS TEST Scenario: GLOBAL MARKET CORRECTION
30-Jun-19 Expected Days to Liquidate or Close Out Expected Projected
Description Quantity Price FX US$ Value Yield 1 2 5 10 30 60 180 360 Yield Volatility Liquidity VaR Stress Liquidity Metric Notes CONTAGION RISK ASSESSMENT
Fixed income
Sovereign Q, EUR, 1,000,000, 31-Dec-2028, 1.5%, 360/360 3 102.85 1.02 3,147,210 1.25% 3.1 1.25% 0.75% 1 0.30% 3% 1 day: up to USD 10mn 2 days: up to USD 20mn Credit rating Aa2/AA
Bank R, USD, 2,000,000, senior unsecured, 31-Dec-2023, 2.0%, 180/360 3 100.85 1.00 6,051,000 1.75% 1.0 4.0 1.1 1.75% 0.35% 2 0.25% 5% 1 day: up to USD 1mn 2 days: up to USD 5mn 5 days: up to USD 10mn 10 days: up to USD 20mn Credit rating A2/A
Bank S, USD, 5,000,000, Coco, 31-Dec-2037, 6%, 180/360 1 93.25 1.00 4,662,500 3.50% 4.7 3.50% 2.65% 5 0.65% -10% 10 days: up to USD 2mn 30 days: up to USD 5mn Credit rating Ba1/BB+
Company T, CAD, 1,500,000, 31-Dec-2021, 2.75%, 360/360 5 91.25 1.33 5,145,677 2.65% 5.1 2.65% 0.55% 1 0.15% 2.5% 5 days: up to USD 5mn 10 days: up to USD 15mn Credit rating Aaa/AA+
US Treasury, USD, 3,000,000, 0%, 31-Dec-2038 5 64.00 1.00 9,600,000 2.75% 2.0 7.6 1 day: up to USD 5Mn 2 days: up to USD 20mn Credit rating A3/A-
NJ State Transit Authority, USD, 1,000,000, 15-Jun-2024, 3%, 180/360 4 94.00 1.00 3,760,000 6.25% 2.0 2.0 (0.2) 2 days: up to USD 1mn 5 days: up to USD 5mn 10 days: up to USD 10mn 30 days: up to USD 20mn Credit rating Baa3/BBB-
IL State GO, USD, 1,000,000, 3-Jan-2024, 5%, 180/360 4 107.00 1.00 4,280,000 4.50% 2.0 2.3 2 days: up to USD 1mn 5 days: up to USD 5mn 10 days: up to USD 10mn 30 days: up to USD 20mn Credit rating Baa1/A-
MI Financial Authority, USD, 1,000,000, 1-Jun-2022, 5%, 180/360 4 106.25 1.00 4,250,000 4.50% 1.0 4.3 2 days: up to USD 1mn 5 days: up to USD 5mn 10 days: up to USD 10mn 30 days: up to USD 20mn Credit rating A-
Equities
Company V, common stock, Nasdaq 175,000 31.54 1.00 5,518,800 0.00% 2.0 3.0 0.5 0.00% 22% 1 4.25% -15% 1 day: up to USD 5Mn 2 days: up to USD 10mn 5 days up to USD 20 mn
Company Y, common stock, TSX 470,000 23.69 1.33 8,372,714 1.50% 1.0 2.0 2.0 3.4 1.50% 12% 2 2.50% -7.5% 1 day: up to USD 1Mn 2 days: up to USD 2mn 5 days up to USD 10 mn 10 days: up to USD 15mn
Company X, common stock, Nikkei 175,000 5,610 122 8,046,701 2.50% 2.0 3.0 3.0 2.50% 34% 4 6.75% -15% 5 days: up to USD 5Mn 10 days: up to USD 10mn
Company W, common stock, Euronext 125,000 37.04 1.02 4,722,600 0.25% 3.0 1.7 0.25% 15% 2 3.50% -7.5% 2 days: up to USD 5mn 5 days: up to USD 10mn 10 days up to USD 20mn
Currencies Shorts
Sell EUR, Buy USD, 1.05, 31-Dec-2019 3,000,000 1.09 1.00 210,000 0.50% 2.75% 1 1.25% -5% 1 day: up to USD 20mn
Sell CAD, Buy USD, 1.35, 30-Jun-2019 5,000,000 1.33 1.00 (100,000) 0.20% 1.75% 1 1.30% -5% 1 day: up to USD 20mn
Derivatives Shorts
Put, SPX, strike 1,800, 5-Jul-19 60 3,576.90 1.00 214,614 66% 1 8.30% 30% 1 day: up to USD 2mn
Put, AEX, strike 395, 5-Jul-19 150 1,988.19 1.02 304,193 28% 1 6.95% 25% 1 day: up to USD 2mn
Put, Nikkei 225, strike 15,000, 5-Jul-19 90 253,750.00 122 187,193 32% 1 5.75% 25% 1 day: up to USD 2mn
Put, GSPTSE, strike 13,000, 5-Jul-19 125 1,987.80 1.33 186,824 1 day: up to USD 2mn
Commercial Real Estate
Ownership of office tower located at 240 E Monroe in Chicago 0.30 29,910,000 1.00 8,973,000 4.75% 9.0 180 days: up to USD 10mn 360 days up to USD 20mn Can be sold in lots of USD 10mn
Ownership of West Hills shopping mall in Pittsburgh 0.11 44,775,000 1.00 5,000,000 5.25% 5.0 180 days up to USD 10mn Can be bought in lots of USD 5mn
Ownership of luxury apartment building in Denver 0.66 7,575,000 1.00 5,000,000 5.85% 5.0 180 days up to USD 10mn Can be bought in lots of USD 5mn
Hedge Funds
Z Investment Advisors Macro Fund 5,000,000 1.02 1.00 5,100,000 3.75% 5.1 60 days: up to USD 5mn
Q Investment Advisors Value Fund 3,000,000 1.01 1.00 3,030,000 5.80% 3.0 180 days: up to USD 10mn
R Investment Advisors CRE Fund 2,000,000 0.98 1.00 1,960,000 4.95% 2.0 180 days: up to USD 10 mn
Total 97,623,025 3.19% 11.3 11.0 17.0 19.1 8.4 7.1 23.7 0.0 Total ERROR:#REF! ERROR:#REF! 97.6
WAV Yield 15% diversification applied
Projected cumulative liquidity 11.6% 22.8% 40.2% 59.8% 68.4% 75.7% 100.0% 100.0%
INVESTMENTS TO CONSIDER YIELD & LIQUIDITY ANALYSIS
31-Mar-16 Expected Days to Liquidate or Close Out Expected Projected
Description Quantity Price FX US$ Value Yield 1 2 5 10 30 60 180 360 Yield Volatility Liquidity VaR Stress Liquidity Metric Notes
Fixed income
Equities
Commercial Real Estate
Hedge Funds
Total 283,670,865 1.10% 30.8 31.2 55.2 68.0 55.9 82.1 252.2 361.0 Total ERROR:#VALUE! ERROR:#REF! 282,668,042
New WAVY 15% diversification applied
New projected cumulative liquidity Old WAVY 10.9% 22.0% 41.5% 65.5% 85.3% 114.4% 203.6% 331.3%
Existing projected cumulative liquidity 1.89% 17.0% 36.9% 59.7% 78.2% 86.3% 91.0% 100.0% 100.0%
+ = =
Rationale for acceptability of liquidity risk in new portfolio
The liquidity profile of the new portfolio exceeds the family’s requirement for at least 30% of the portfolio to be liquid in 2 days.

Applying Analytic Techniques to Business

Overview

The first step in creating meaningful information from raw data is to represent the data effectively in a graphical format and calculate any required statistics. The second step is interpreting and explaining those graphs and statistics in order to apply them in the practical business context. 

In the last assignment, you were asked to create the first part of your analytics report by developing graphs and calculating some descriptive statistics. In this assignment, you will complete your analytics report by interpreting those graphs and statistics, and explicitly connecting those interpretations to implications in the practical business context.

Scenario

Your supervisor has asked you to prepare a report for the quarterly company meeting. The first part of the task was to download the data and create scatterplots and histograms, and to calculate mean, median, and mode of the stock prices for your report. Now you must analyze and interpret those graphical representations of the company stocks and write the report of your findings for your supervisor. 

Your Role

You are an analyst in the same business that you used for the last assignment. Having accessed the company data and placed it in an appropriate graphical format, you must now use descriptive statistics and analysis to develop a report to inform business decisions. 

Instructions

After reviewing and integrating your instructor’s feedback on your previous assignment, complete the report as follows:

· For each graph you created, write at least one paragraph interpreting the graph.

. What does that graph represent?

. What does the shape of the graph tell you about how the data have changed over time?

· For each statistic you calculated, include at least one sentence explaining what the statistic represents.

. What does the mean tell you?

. What does it imply if the median is different from the mean?

. What does the standard deviation tell you about the volatility of the data?

· Write a new conclusions section in which you explain how these interpretations can be used in the company:

. What are some trends about which company leaders should be aware?

. How might the information you have provided be used in decision making in the company?

. Explicitly connect those interpretations to implications in the practical business context.

· Create a 6–8 page report containing:

. APA-formatted title page.

. One-page introduction of your chosen company that you created in your previous assignment.

. Section labeled Graphical Representations of Data that includes the four graphs you created as well as your interpretations of the graphs.

. Section labeled Descriptive Statistics, with the statistics you calculated as well as your interpretations of the statistics.

. One-page conclusion in which you describe the potential business applications of the data and interpretations.

. APA-formatted references page (remember to cite the source of your financial data).

Additional Requirements

· Include APA-formatted in-text citations where appropriate.

· Follow the typical double-spaced analytics report format. 

· Make sure your written communication is free of errors that detract from the overall message.