Part3: Quantifying Systemic Risk Let us quantify systemic risk with VaR methods Download daily BAC stock price from either Yahoo Finance or Bloomberg. The data period is from December 31, 2002 and December 31, 2007. Compute daily returns for the stock by using the below equation and plot a histogram to see the distribution of the stock returns. Check the shape of this distribution and compare it with the normal distribution where Rr is a stock return for BAC at time T (day) and Pr is an adjusted close price at time 2. Calculate both arithmetic average and standard deviation of daily stock returns. Ri 3. Using the parametric method, compute a l day VaR with i% significant level and a 1 year VaR 4. Using the parametric method, compute a 1 day ES with 1% significant level. 5. Calculate both geometric average and standard deviation of daily stock returns. 6. From problem 2 and 4, calculate annualized returns and standard deviations, which are given by Annualized R-R V252 Annualized R,-Rs x V252 Annualized = V252 Annualized ,-0g x V252 7. Using the annualized arithmetic return and standard deviation from the previous example, estimate a 1 year VaR with 1% significant level employing the parametric method 8. For this time, calculate a 1 day VaR and 1 day ES using the simulation method (historical simulation). Part3: Quantifying Systemic Risk Let us quantify systemic risk with VaR methods Download daily BAC stock price from either Yahoo Finance or Bloomberg. The data period is from December 31, 2002 and December 31, 2007. Compute daily returns for the stock by using the below equation and plot a histogram to see the distribution of the stock returns. Check the shape of this distribution and compare it with the normal distribution where Rr is a stock return for BAC at time T (day) and Pr is an adjusted close price at time 2. Calculate both arithmetic average and standard deviation of daily stock returns. Ri 3. Using the parametric method, compute a l day VaR with i% significant level and a 1 year VaR 4. Using the parametric method, compute a 1 day ES with 1% significant level. 5. Calculate both geometric average and standard deviation of daily stock returns. 6. From problem 2 and 4, calculate annualized returns and standard deviations, which are given by Annualized R-R V252 Annualized R,-Rs x V252 Annualized = V252 Annualized ,-0g x V252 7. Using the annualized arithmetic return and standard deviation from the previous example, estimate a 1 year VaR with 1% significant level employing the parametric method 8. For this time, calculate a 1 day VaR and 1 day ES using the simulation method (historical simulation)