Development of an Equity Risk Score System and Interest Rate Shock Modelling for Value-at-Risk Computation
The objective of this research is twofold: to improve existing risk management framework to assess interest rate shocks, and to develop a new risk factor model to create an equity risk score system to help guide investment decisions.
The first part of this research project involves the development of an equity risk score system to better evaluate the quality of an investment. The system will provide a standardized score to measure if the level of risk of an investment is acceptable, which is intended to aid a financial analyst in the ensuing investment recommendation
The second objective is to improve upon industry practice and create a framework to model interest rate shocks. The main driver is to improve the calibration of interest rate movements, where small absolute fluctuations in a low interest rate environment result in very large relative fluctuations, and vice versa.