Risk Analysis Solution

I hope you have tried yourself to generate as many arguments, risk definitions and presentation graphics as possible. Go back to the scenario page if you have not :-)

Solution [There are many possible approaches - I just present mine here:]

First sort all returns of each fund. Then calculate as many risk measures as possible. I have calculated these - best values are highlighted in green, worst values in orange:

The VaR / Return relations:

The return distributions with a "boring" standard graphic:

And finally the distributions shown with a more interesting scatter diagram. I got the idea from Viktor B., a former colleague of mine who is a renumeration expert. He also inspired the graphics I used when I published the salaries of all lawyers of my banking group.

With this graphic you can easily see that Real Estate returns have a loss border - actually, when losses are cut and the collaterals are being used, the banks face a fix effort which moves the lower boundary to the left and which leaves a small gap. Fixed Income returns also show a lower boundary, but a certain concentration around 0. FX returns show a bigger concentration around 0 and a wider unbound distribution. Equity returns are normally distributed here.