# FINC4012 Project

**Repository Path**: danielsou0622/FINC4012-Project

## Basic Information

- **Project Name**: FINC4012 Project
- **Description**: No description available
- **Primary Language**: Python
- **License**: Not specified
- **Default Branch**: master
- **Homepage**: None
- **GVP Project**: No

## Statistics

- **Stars**: 0
- **Forks**: 0
- **Created**: 2020-04-26
- **Last Updated**: 2020-12-19

## Categories & Tags

**Categories**: Uncategorized

**Tags**: None

## README

# P01.2 FINC4012 Financial Risk Management Finalized Project Proposal
# FINC4012 Financial Risk Management
# Table of Content
## Introduction 
* bond selection
* interest rate

Remember to make the assumption❗️

The project link:


## Data Testing
* ADF Stationary Test (Augmented Dickey-Fuller Test)

A Series who has heteroskedasticity can be explored under ARCH model or GARCH model.

## model analysis
* VaR
* Least squares
* GARCH
* Monte carlo simulation

## Hedge strategic
* Method 1: Duration Hedging
* Method 2: Buy Interest Rate Futures
* Method 3: Buy Floating-Rate or High Yield Bonds

Other Option

* plain vanilla bond
* bond option
* forward rate agreement

---


# Finalized Project Proposal
Remember to make the assumption❗️

 

Question 01

1.     Which type of financial risk will your group study?

Ans: 

Interest rate risk

 

Question 02
2.     Which methodology or methodologies will your group use?

Ans:

## Target:
S&P 500 Bond Index: is Designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large- cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.

 

## Measurement:
We use the data from the website below to get information include Index price, YTM, Effective duration, Convexity.

Step 1: We use the YTM to calculate the volatility of interest rate

Step 2: We simplify the model, assuming no drift 

(Combination of the true expected change in the interest rate and of a risk premium), interest rate is normally distributed. Therefore, using 

![图片](https://uploader.shimo.im/f/5THno0FlKCxsAdzE!thumbnail), we can get the path of interest rate.

Step 3: We use the dr, the duration and convexity calculate the delta price, and then get the Gain/Loss, repeat N time to get the distribution and then find the VaR.

(Monte Carlo Simulation)

 

## Managing interest rate risk
Method 1: Duration Hedging

Method 2: Buy Interest Rate Futures

Method 3: Buy Floating-Rate or High Yield Bonds

Question 03 

3.     What data will your group use and how will your group collect the data? 

What is your study sample?

Ans:

S&P 500 Bond Index daily price, YTM, Effective duration, Convexity.

[https://us.spindices.com/indices/fixed-income/sp-500-bond-index](https://us.spindices.com/indices/fixed-income/sp-500-bond-index)

Question 04

4. What is the frequency of the data to be collected and for which time period?

Ans: 

Daily S&P 500 Bond Index daily price from March 2017 to March 2020

[📎combine_data.xlsx](https://www.yuque.com/attachments/yuque/0/2020/xlsx/1144896/1584496209221-9a362b2f-932a-4612-a77e-6b3fcd2c9719.xlsx)

## Python OLS Model
Python Statsmodels 统计包之 OLS 回归
https://zhuanlan.zhihu.com/p/22692029