Exploring return series
To analyze risk, the key task is to model the fluctuations in prices and rates over different time periods; these fluctuations are known as returns. To calculate the log-returns of the FTSE stock index and assign to ftse_x
, apply the log()
and diff()
functions in succession:
> ftse_x <- diff(log(FTSE))
As you saw in the video, differencing in this way will always give a NA
in the first position of the time series, which can then be removed with diff(log(FTSE))[-1]
. However, you will not need to do this in the course unless it is specified in the instructions.
In this exercise, you will calculate and plot log-return series for the equity and FX risk factors that you have previously encountered. The datasets dj0809
, djstocks
, and GBP_USD
have been pre-loaded into your workspace.
This exercise is part of the course
Quantitative Risk Management in R
Exercise instructions
- Compute the log-returns of the DJ index in
dj0809
and assign to objectdj0809_x
. - Plot the return series
dj0809_x
. - Compute the log-returns of all share prices in
djstocks
and assign todjstocks_x
. - Plot the share returns
djstocks_x
. Note thatdjstocks_x
contains multiple time series. - Compute the log-returns of the
GBP_USD
exchange rate series and assign toerate_x
. - Plot the return series
erate_x
.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Compute the log-returns of dj0809 and assign to dj0809_x
dj0809_x <- ___(___)
# Plot the log-returns
___(___)
# Compute the log-returns of djstocks and assign to djstocks_x
djstocks_x <- ___(___)
# Plot the two share returns
___(___)
# Compute the log-returns of GBP_USD and assign to erate_x
erate_x <- ___(___)
# Plot the log-returns
___(___)