Contagion Financial Risk Management in An Investment Excel Please read the following and see attachment for the excel Description: You are the same risk a

Contagion Financial Risk Management in An Investment Excel Please read the following and see attachment for the excel

Description: You are the same risk analyst in a wealth management company who helped one of the wealth managers win the account of the Vanderbilt Family Office. Your liquidity analysis of the FO’s existing and proposed investment portfolios was favorably received and the proposed portfolio changes were made.

Now the FO’s Administrative Manager has asked you to stress test the new portfolio in a Global Markets Correction scenario, highlighting the positions which are vulnerable to contagion between more than one risk category.

Instruction: Study the price changes of the investments listed in Attachment A between 31 March 2019 and the 30 June 2019 stress test. Based on your knowledge of each type of investment’s market, credit and liquidity risk characteristics, enter your rationale for the existence and magnitude, or non-existence, of contagion risk against each position in the shaded Contagion Risk Assessment column. Then, answer the following questions, giving brief reasons for each of your answers.

1.Which fixed income position(s) show the most contagion risk in the stress test?

2.Which equity position(s) show the most contagion risk in the stress test?

3.Which alternative investment* position(s) show the most contagion risk in the stress test?

(* = Commercial Real Estate and Hedge Funds) Course
Assignment
Title
Due
Description
Financial Risk ManagementInterconnected Risk Exercise 12.1
Assess contagion risk in an investment portfolio
You are the same risk analyst in a wealth management company who helped one of
the wealth managers win the account of the Vanderbilt Family Office. Your liquidity
analysis of the FO’s existing and proposed investment portfolios was favorably
received and the proposed portfolio changes were made.
Now the FO’s Administrative Manager has asked you to stress test the new portfolio
in a Global Markets Correction scenario, highlighting the positions which are
vulnerable to contagion between more than one risk category.
Instructions
Study the price changes of the investments listed in Attachment A between 31
March 2019 and the 30 June 2019 stress test. Based on your knowledge of each type
of investment’s market, credit and liquidity risk characteristics, enter your rationale
for the existence and magnitude, or non-existence, of contagion risk against each
position in the shaded Contagion Risk Assessment column. Then, answer the
following questions, giving brief reasons for each of your answers.
1. Which fixed income position(s) show the most contagion risk in the stress test?
2. Which equity position(s) show the most contagion risk in the stress test?
3. Which alternative investment* position(s) show the most contagion risk in the
stress test?
(* = Commercial Real Estate and Hedge Funds)
Responses
Which fixed income position(s) show the most contagion risk in the stress test?
Which equity position(s) show the most contagion risk in the stress test?
Which alternative investment* position(s) show the most contagion risk in the
stress test?
Instructor
Attachment A: Global Market Correction stress test of new Vanderbilt Family Office
Attachments investment portfolio
Attachment A
VANDERBILT FAMILY OFFICE INVESTMENT PORTFOLIO – NEW PORTFOLIO
Description
Fixed income
Sovereign Q, EUR, 1,000,000, 31-Dec-2028,
1.5%, 360/360
Bank R, USD, 2,000,000, senior unsecured, 31Dec-2023, 2.0%, 180/360
Bank S, USD, 5,000,000, Coco, 31-Dec-2037,
6%, 180/360
Company T, CAD, 1,500,000, 31-Dec-2021,
2.75%, 360/360
US Treasury, USD, 3,000,000, 0%, 31-Dec2038
31-Mar-19
FX
US$ Value
Expected
Yield
1
3,341,228
1.25%
3.3
1.00
6,071,520
1.75%
1.0
1.00
4,850,000
6.25%
Quantity
Price
3
102.12
1.09
3
101.19
1
0.97
2
4.0
Days to Liquidate or Close Out
5
10
30
60
180
360
1.1
2.0
Liquidity Metric
1 day: up to USD 10mn
2 days: up to USD 20mn
Credit rating
Aa2/AA
1 day: up to USD 1mn
2 days: up to USD 5mn
5 days: up to USD 10mn
10 days: up to USD 20mn
Credit rating A2/A
10 days: up to USD 2mn
days: up to USD 5mn
2.9
Notes
30 Credit rating
Baa3/BBB-
5 days: up to USD 5mn
10 days: up to USD 15mn
1 day: up to USD 5Mn
2 days: up to USD 20mn
2 days: up to USD 1mn
5 days: up to USD 5mn
10 days: up to USD 10mn
30 days: up to USD 20mn
2 days: up to USD 1mn
5 days: up to USD 5mn
10 days: up to USD 10mn
30 days: up to USD 20mn
2 days: up to USD 1mn
5 days: up to USD 5mn
10 days: up to USD 10mn
30 days: up to USD 20mn
5.2
Credit rating
Ba1/BB+
Credit rating
Aaa/AA+
5
0.96
1.39
5,166,367
3.50%
5
0.59
1.00
8,890,200
2.65%
NJ State Transit Authority, USD, 1,000,000,
15-Jun-2024, 3%, 180/360
4
100.47
1.00
4,018,840
2.75%
1.0
3.0
IL State GO, USD, 1,000,000, 3-Jan-2024, 5%,
180/360
4
1.10
1.00
4,398,400
4.50%
1.0
3.4
MI Financial Authority, USD, 1,000,000, 1-Jun2022, 5%, 180/360
4
1.08
1.00
4,304,400
4.50%
1.0
3.3
Company V, common stock, Nasdaq
175,000
39.42
1.00
6,898,500
0.00%
5.0
1.9
Company Y, common stock, TSX
470,000
24.94
1.39
8,432,950
1.50%
1.0
1.0
Company X, common stock, Nikkei
175,000
6,233
120.36
9,062,604
2.50%
Company W, common stock, Euronext
125,000
46.30
1.09
6,311,848
0.25%
3,000,000
5,000,000
1.08
1.38
1.00
1.00
(87,000)
(130,000)
–
1 day: up to USD 20mn
1 day: up to USD 20mn
60
150
1,021.97
441.82
1.00
1.09
(61,318)
(72,277)
–
1 day: up to USD 2mn
90
125
72,500.00
764.54
120.36
1.39
(54,212)
(68,754)
–
1 day: up to USD 2mn
0.30
30,000,000
1.00
9,000,000
4.75%
9.0
180 days: up to USD 10mn
360 days up to USD 20mn
Can be sold in lots
of USD 10mn
Ownership of West Hills shopping mall in
Pittsburgh
0.11
45,000,000
1.00
5,000,000
5.25%
5.0
180 days up to USD 10mn
Can be bought in
lots of USD 5mn
Ownership of luxury apartment building in
Denver
0.07
75,000,000
1.00
5,000,000
5.85%
5.0
180 days up to USD 10mn
Can be bought in
lots of USD 5mn
Z Investment Advisors Macro Fund
5,000,000
0.95
1.00
4,750,000
3.75%
Q Investment Advisors Value Fund
3,000,000
1.02
1.00
3,060,000
5.80%
3.1
180 days: up to USD 10mn
R Investment Advisors CRE Fund
2,000,000
1.00
1.00
2,000,000
4.95%
2.0
180 days: up to USD 10 mn
5.0
3.9
Credit rating A3/A-
Credit rating Baa1/A-
Credit rating A-
Equities
Currencies
Sell EUR, Buy USD, 1.05, 31-Dec-2019
Sell CAD, Buy USD, 1.35, 30-Jun-2019
Derivatives
Put, SPX, strike 1,800, 5-Jul-19
Put, AEX, strike 395, 5-Jul-19
Put, Nikkei 225, strike 15,000, 5-Jul-19
Put, GSPTSE, strike 13,000, 5-Jul-19
Commercial Real Estate
Ownership of office tower located at 240 E
Monroe in Chicago
6.4
5.0
5.0
1 day: up to USD 5Mn
2 days: up to USD 10mn
days up to USD 20 mn
1 day: up to USD 1Mn
2 days: up to USD 2mn
days up to USD 10 mn
10 days: up to USD 15mn
5 days: up to USD 5Mn
10 days: up to USD 10mn
2 days: up to USD 5mn
5 days: up to USD 10mn
10 days up to USD 20mn
4.1
1.3
5
5
1 day: up to USD 2mn
1 day: up to USD 2mn
Hedge Funds
Total
100,083,294
Projected cumulative liquidity
4.8
60 days: up to USD 5mn
3.17%
15.3 18.8 28.7
6.1
2.9
4.8
24.1
0.0
WAV Yield
15.3% 34.1% 62.8% 68.8% 71.7% 76.4% 100.5% 100.5%
100.6
Attachment A
VANDERBILT FAMILY OFFICE INVESTMENT PORTFOLIO – NEW PORTFOLIO – STRESS TEST
Description
Fixed income
Sovereign Q, EUR, 1,000,000, 31-Dec-2028,
1.5%, 360/360
Quantity
Price
3
102.85
Scenario: GLOBAL MARKET CORRECTION
30-Jun-19
FX
US$ Value
1.02
3,147,210
Days to Liquidate or Close Out
5
10
30
60
180
Expected
Yield
1
1.25%
3.1
1 day: up to USD 10mn
2 days: up to USD 20mn
Credit rating Aa2/AA
1.0
1.1
1 day: up to USD 1mn
2 days: up to USD 5mn
5 days: up to USD 10mn
10 days: up to USD 20mn
Credit rating A2/A
4.7
10 days: up to USD 2mn
days: up to USD 5mn
2
360
Liquidity Metric
Notes
Bank R, USD, 2,000,000, senior unsecured, 31Dec-2023, 2.0%, 180/360
3
100.85
1.00
6,051,000
1.75%
Bank S, USD, 5,000,000, Coco, 31-Dec-2037,
6%, 180/360
1
93.25
1.00
4,662,500
3.50%
Company T, CAD, 1,500,000, 31-Dec-2021,
2.75%, 360/360
5
91.25
1.33
5,145,677
2.65%
US Treasury, USD, 3,000,000, 0%, 31-Dec-2038
5
64.00
1.00
9,600,000
2.75%
NJ State Transit Authority, USD, 1,000,000, 15Jun-2024, 3%, 180/360
4
94.00
1.00
3,760,000
6.25%
IL State GO, USD, 1,000,000, 3-Jan-2024, 5%,
180/360
4
107.00
1.00
4,280,000
4.50%
2.0
2.3
MI Financial Authority, USD, 1,000,000, 1-Jun2022, 5%, 180/360
4
106.25
1.00
4,250,000
4.50%
1.0
4.3
Company V, common stock, Nasdaq
175,000
31.54
1.00
5,518,800
0.00%
Company Y, common stock, TSX
470,000
23.69
1.33
8,372,714
1.50%
Company X, common stock, Nikkei
175,000
5,610
122
8,046,701
2.50%
Company W, common stock, Euronext
125,000
37.04
1.02
4,722,600
0.25%
3,000,000
5,000,000
1.09
1.33
1.00
1.00
210,000
(100,000)
–
1 day: up to USD 20mn
1 day: up to USD 20mn
60
150
3,576.90
1,988.19
1.00
1.02
214,614
304,193
–
1 day: up to USD 2mn
90
125
253,750.00
1,987.80
122
1.33
187,193
186,824
–
1 day: up to USD 2mn
0.30
29,910,000
1.00
8,973,000
4.75%
9.0
180 days: up to USD 10mn
360 days up to USD 20mn
Can be sold in lots of
USD 10mn
Ownership of West Hills shopping mall in
Pittsburgh
0.11
44,775,000
1.00
5,000,000
5.25%
5.0
180 days up to USD 10mn
Can be bought in
lots of USD 5mn
Ownership of luxury apartment building in
Denver
0.66
7,575,000
1.00
5,000,000
5.85%
5.0
180 days up to USD 10mn
Can be bought in
lots of USD 5mn
Z Investment Advisors Macro Fund
5,000,000
1.02
1.00
5,100,000
3.75%
Q Investment Advisors Value Fund
3,000,000
1.01
1.00
3,030,000
5.80%
3.0
180 days: up to USD 10mn
R Investment Advisors CRE Fund
2,000,000
0.98
1.00
1,960,000
4.95%
2.0
180 days: up to USD 10 mn
97,623,025
3.19%
WAV Yield
4.0
5.1
2.0
7.6
2.0
2.0
30
5 days: up to USD 5mn
10 days: up to USD 15mn
Credit rating
Aaa/AA+
1 day: up to USD 5Mn
2 days: up to USD 20mn
Credit rating A3/A-
2 days: up to USD 1mn
5 days: up to USD 5mn
10 days: up to USD 10mn
30 days: up to USD 20mn
2 days: up to USD 1mn
5 days: up to USD 5mn
10 days: up to USD 10mn
30 days: up to USD 20mn
(0.2)
Credit rating
Ba1/BB+
Credit rating
Baa3/BBB-
Credit rating Baa1/A-
2 days: up to USD 1mn
5 days: up to USD 5mn
10 days: up to USD 10mn
30 days: up to USD 20mn
Credit rating A-
Equities
Currencies
Sell EUR, Buy USD, 1.05, 31-Dec-2019
Sell CAD, Buy USD, 1.35, 30-Jun-2019
Derivatives
Put, SPX, strike 1,800, 5-Jul-19
Put, AEX, strike 395, 5-Jul-19
Put, Nikkei 225, strike 15,000, 5-Jul-19
Put, GSPTSE, strike 13,000, 5-Jul-19
Commercial Real Estate
Ownership of office tower located at 240 E
Monroe in Chicago
2.0
3.0
0.5
1.0
2.0
2.0
3.4
2.0
3.0
3.0
3.0
1 day: up to USD 5Mn
2 days: up to USD 10mn
days up to USD 20 mn
1 day: up to USD 1Mn
2 days: up to USD 2mn
days up to USD 10 mn
10 days: up to USD 15mn
5 days: up to USD 5Mn
10 days: up to USD 10mn
2 days: up to USD 5mn
5 days: up to USD 10mn
10 days up to USD 20mn
1.7
5
5
1 day: up to USD 2mn
1 day: up to USD 2mn
Hedge Funds
Total
Projected cumulative liquidity
5.1
11.3
11.0
17.0
19.1
8.4
7.1
60 days: up to USD 5mn
23.7
0.0
11.6% 22.8% 40.2% 59.8% 68.4% 75.7% 100.0% 100.0%
97.6
CONTAGION RISK ASSESSMENT

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