FRAM Assignment
Weightage: 20 marks
Deadline for submission: EOD Monday 30th June
Data Period: 2 years - January 1, 2022 to December 31, 2023 (daily)
1. Portfolio Construction (3 marks)
1. Select Assets. (Ensure you standardize to the same currency for all assets)
i. Two market indices (e.g. NIFTY 50, S&P 500, etc).
ii. Two individual stocks (any two listed companies).
2. Compute daily log-returns of each asset and the volatility of each of your asset returns
over the given period.
3. Choose portfolio weights. Total Money to be invested = 1,00,000. Equal-weighted (wi
= 0.25 each) or in some other proportion. Justify your choice of weights. You should try
to choose weights and assets to minimize the risk.
2. Historical Simulation for VaR & ES (6 marks)
1. Estimate the following for your portfolio via the historical simulation method as taught
in class.
i. VaR@95% and VaR@99%
ii. ES@95% and ES@99%
2. Sub-additivity check:
i. Compute VaR@95% and ES@95% for each asset.
ii. Compare VaR of the individual assets vs. VaR of portfolio; does VaR satisfy sub-
additivity?
iii. Likewise check subadditivity for ES.
3. Deliverables:
i. Table of VaR/ES for each asset and portfolio.
ii. 4–5 sentence interpretation of each of the figures and values obtained
.
3. Empirical Greeks Analysis (6 marks)
3.1 Synthetic Option Pricing via Black–Scholes
Pick a suitable 30 day period of your choice from the 2 year window. T=0 is the start of
the and t=30 is the end. Synthetic option to be created on the portfolio defined above.
Compute:
Would be beneficial to buy a call? When and why?
3.2 Empirical Greeks from the Ct Series
Similarly, can you analyze how the value of the call changes with time (theta).
If the risk-free rate were 6% instead, what effect would it have?
3.3 Reporting & Analysis for Greeks
a. Day 2 (t=2)
b. Middle e.g. Day 15 (t=15)
c. Near expiry e.g. (t=29)
(Take some time around these days if on these exact days the market was
closed or some other issue.)
What observations can you make from the variation in the delta and gamma series of the
call?
4. Section 4 (5 marks)
Marks in this section will be allotted to the depth, clarity, and insight of your analysis and
interpretation of results from Sections 1–3.
I. Synthesize Key Findings-Summarize, in 2–3 paragraphs, how your portfolio
choice, tail-risk metrics, and Greeks together paint a coherent story about your
portfolio’s risk profile.
II. Discuss Limitations-Note any data or methodological limitations
III. Actionable Recommendations-Based on your joint analysis, give 2–3 concrete
recommendations
You are also encouraged to explore any additional concepts or extensions, such as
– Sensitivity analyses (e.g., varying confidence levels, analysis on what happens
when volatility increases, etc.)
– Robustness checks (e.g., back testing of Var using methods discussed in class)
Submission Format
Single Excel file named after your group number, e.g., “Group3_fram”, and sent to your
email. [email protected]
I. First sheet called “Index” must contain:
a. A table of contents with every worksheet name and a one-line
description.
b. Internal hyperlinks to each worksheet.
c. Names & roll numbers of all group members.
II. AI Detection will be carried out, and you will be penalized, so please ensure you
do not use excessive AI
Before submitting, verify all hyperlinks work and that the file is easy to navigate.
5 Marks will be deducted straight away if submitted after the deadline. ( 11:59 pm
Monday)
