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Topic: Quantitative Research Model

Quantitative Research Methods
Project Methodologies (Coursework 2)
FINA1108
Due Date: 5th Dec 2019
70% weightage towards the final grade
(Total Marks 100)
This coursework involves:
I. Verifying stationarity of a given time-series using ACF test
II. Portfolio Optimization
III. Volatility forecast using GARCH(1,1)
IV. ARMA model
Consider any 8 stocks’ latest daily data for 1 year from FTSE100 (for example, use the data between Nov
2018 and Nov 2019).
Tasks:
(A)
Let represent the log return time series of a stock . Find ACF
and PACF for each of the time series and verify the stationarity of 4 stocks of your choice
from the selected 8 stocks. Discuss the results.
(20 Marks)
(B)
(1) Briefly explain mean-variance portfolio optimization (10 Marks)
(2) Estimate the covariance matrix for the selected 8 companies’ stocks
(10 Marks)
(3) Plot by creating portfolios using the selected 8 companies and the obtained
covariance matrix. (10 Marks)
it z i, where iÎ{1,!,4}
it z
P RP and s
(C)
Using the first 10 month data as in-sample data, estimate GARCH(1,1) parameters for the volatility
forecast of any two stocks of your choice. Comment on the volatility forecasting efficiency of
GARCH(1,1) model considering the final two month data as out-of-sample data.
(20 Marks)
(D)
For each , estimate the ARMA(3,2) model and comment on the estimations. (20 Marks)
You need to present the results from the above tasks in a report form (2500 words) for a fund manager
who is interested in creating a portfolio using the selected 5 companies. In the report, you need to give a
brief introduction on the methods and their limitations using the existing literature. The report must be
submitted on moodle.
Report writing (references, format, academic writing style etc.) (10 Marks)
it z

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