This assignment solution for AFIN328, Financial Risk Management, addresses four key questions. The first question focuses on dynamic delta hedging for European put options, detailing the strategy and explaining the profit/loss outcome at maturity. The second question involves estimating the EWMA model for daily volatilities and covariance of two asset classes, including plotting volatilities, correlation and discussing potential issues. The third question explores the application of the Gaussian copula for computing probabilities, discussing its limitations in capturing default clusters and the impact of copula choice on bond ratings. The fourth question calculates 1-day 99% VaR and 1-day 97.5% expected shortfall for two asset classes, providing a loss calculation and risk assessment based on historical data.
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