Case 2 Delivery date: 6th December 23h55

Task 1 - Build a workbook that allows the user estimate expected returns and the variance
covariance for 10 assets using a factor model approach.

E(R ) 𝑌 = 𝛼 + 𝛽1 𝐹1 + 𝛽2 𝐹2 + 𝛽3 𝐹3 + 𝜀
E(VCV ) 𝛽′ ∙ Σ𝑓𝑎𝑐𝑡𝑜𝑟 ⋅ 𝛽
Σ𝑓𝑎𝑐𝑡𝑜𝑟 EWMA approach
User inputs:

• The user can choose between two factor model configurations: (a) just F1 or (b) F1, F2 and
F3 simultaneously;
• Sample size for beta estimation (same for each asset, input can be 6 months, 12 months, 24
months, 36 months, 48 months or 60 months);
• λ in de EWMA model.

Use as base data the information in data_case2.xls.

In this task you should:

a. use Name Manager when appropriate

b. include relevant tests and checks
c. avoid hard-coding
d. use appropriate number and sheet formatting
e. keep an appropriate separation between data, engine, inputs and outputs
f. document your work and the limitations of your file in an efficient way
g. you don’t need to worry about the updatability of the workbook (i.e: a different data
set could have more rows in the data section). Just make the file work for the given
dataset.

Task 2 – Create a “sensitivity analysis” sheet in the same workbook. This sheet is populated by a
Macro.

Write a macro that allows the user to get the expected return vector over different model input
combinations (factor model configuration, sample size for beta estimations and λ). Meaning that,
the user presses a button and the macro runs the model for different model input configurations
and saves the expected return vector.