Managing Financial Risk

respond to the following questions:

  1. Use the data about the pricing of a put and a call on a selected stock and create “Profit Graphs.” Make sure you show the numbers on the graph and discuss when the buyers of calls or puts are in the money or out of the money.
  2. How VaR relates to Puts? Explain in detail
    To get put and call pricing use:
  3. Create a portfolio of stocks
    a. Use the securities you selected to find the VaR of your portfolio with $100,000,000 investment.
    b. Find the stock stressing the portfolio through stress analysis and sensitivity analysis
    c. Now change the distribution of this one stock by truncating the loss to eliminate the 5% VaR. You do this since you bought a put option that protects you against a loss of 5% for the one stock that is stressing the portfolio the most (based on the stress analysis you conducted).
    i. When you do truncation, you will use: =RiskLaplace(0.025384,0.13748,RiskTruncateP(0.05,1),RiskName(“NVIDIA”),RiskCorrmat(RISKCorrelations,4)) (see example)
  4. Show the results of the portfolio’s VaR and stress analysis with the Put option from part 1
  5. How are the results with the put options changed? (use the truncation).
  6. Explain every step in your own words. Connect between the put you selected and the VaR. What did you save buying the put? Compare to the cost of the Put (You are doing cost/benefit analysis).
    Note: All the above should include correlation
    For this part, please use the link:


  1. Explain the structure of securitization and how it works, include the borrowers, originator, SPV, and investors. It is best to show the diagram and explain every part of it in your own words
  2. How CDSs contributed to building more securitizations? Use the AIG example to answer this question
  3. How can securitization become a problem for firms in regards to risk?
  4. What are Cat Bonds? Are they like securitization? Or like Reinsurance? Explain.
  5. Watch the “Big Short” and explain in your own words what Big Short action was conducted. How did they profit?
  6. Watch the “Warning” and explain what was the regulators’ mistake. Were there lessons to be learned for curtailing the 2008 financial crisis? What are they?

Sample Solution