Testing the effectiveness of the use of value at risk in cases of economic distress - Essay Example

With the United States’s credit rating on the Standard and Poor’s being downgraded from triple A (AAA) to double A (AA), this has changed the landscape for various lenders to have to watch more closely, and with a more critical eye, what money they loan out and to whom they are loaning money. This will be discussed more later. The Monte Carlo simulation has a basic formula of “(b-a)+b.” According to the Monte Carlo Simulation (2011), “[T]he Monte Carlo Analysis technique utilizes the three estimates to repeatedly simulate the project’s completion date, while taking into account the statistical likelihood that each activity’s duration will be somewhere on the continuum between the three estimates.

The result of this analysis will [have] X% chance that the project will be complete on or before date Y” (pgh. 6). The first simulation was conducted on Citibank Corp. bank. Portfolio returns are best when they are diversified. There are a number of wonderful stocks which one can invest in in order to see great returns. The key is to make sure that various percentages of stocks are bought in order to balance out any difficulties so that, if one stock tanks a bit, other stocks will recoup the loss.

Supposedly, Standard & Poor’s 500 Composite Index on income return is 1.01%, while its capital return is 5%--for a total return of 6.01%. Class A shares have a total return of 3.89%. Meanwhile, Lipper Growth and Income Funds Index has a total return of 5.29%. The U.S. economy, this past year, did not see much growth in the first six months of the year. Markets have been adversely affected by the slowdown. Triggered by worries about the U.S. budget deficit, a very high (at least 9.1% nationally) unemployment rate, the European debt crisis, and a decrease of growth in China—such macroeconomic concerns kept stock markets in turbulence, causing the U.S. stock market to have a volatility index the likes of which have