My Baptism Essay

The Sacrament of Baptism is often called â€Å"The door of the Church,† because it is the first of the seven sacraments not only in time (since most Catholics receive it as infants) but in priority, since the reception of the other sacraments depends on it. It is the first of the three Sacraments of Initiation, the other two being the Sacrament of Confirmation and the Sacrament of Holy Communion. Once baptized, a person becomes a member of the Church. Traditionally, the rite (or ceremony) of baptism was held outside the doors of the main part of the church, to signify this fact. The Necessity of Baptism: Christ Himself ordered His disciples to preach the Gospel to all nations and to baptize those who accept the message of the Gospel. In His encounter with Nicodemus (John 3:1-21), Christ made it clear that baptism was necessary for salvation: â€Å"Amen, amen I say to thee, unless a man be born again of water and the Holy Ghost, he cannot enter into the kingdom of God. † For Catholics, the sacrament is not a mere formality; it is the very mark of a Christian, because it brings us into new life in Christ. Baptism of Desire: That doesn’t mean that only those who have been formally baptized can be saved. From very early on, the Church recognized that there are two other types of baptism besides the baptism of water. The baptism of desire applies both to those who, while wishing to be baptized, die before receiving the sacrament and â€Å"Those who, through no fault of their own, do not know the Gospel of Christ or His Church, but who nevertheless seek God with a sincere heart, and, moved by grace, try in their actions to do His will as they know it through the dictates of conscience† (Constitution on the Church, Second Vatican Council). Baptism of Blood: The baptism of blood is similar to the baptism of desire. It refers to the martyrdom of those believers who were killed for the faith before they had a chance to be baptized. This was a common occurrence in the early centuries of the Church, but also in later times in missionary lands. The baptism of blood has the same effects as the baptism of water. The Form of the Sacrament of Baptism: While the Church has an extended rite of Baptism which is normally celebrated, which includes roles for both parents and godparents, the essentials of that rite are two: the pouring of water over the head of the person to be baptized (or the immersion of the person in water); and the words â€Å"I baptize you in the name of the Father, and of the Son, and of the Holy Spirit. † The Minister of the Sacrament of Baptism: Since the form of baptism requires just the water and the words, the sacrament, like the Sacrament of Marriage, does not require a priest; any baptized person can baptize another. In fact, when the life of a person is in danger, even a non-baptized person—including someone who does not himself believe in Christ—can baptize, provided that the person performing the baptism follows the form of baptism and intends, by the baptism, to do what the Church does—in other words, to bring the person being baptized into the fullness of the Church. Infant Baptism: In the Catholic Church today, baptism is most commonly administered to infants. While some other Christians strenuously object to infant baptism, believing that baptism requires assent on the part of the person being baptized, the Eastern Orthodox, Anglicans, Lutherans, and other mainline Protestants also practice infant baptism, and there is evidence that it was practiced from the earliest days of the Church. Since baptism removes both the guilt and the punishment due to Original Sin, delaying baptism until a child can understand the sacrament may put the child’s salvation in danger, should he die un-baptized. Adult Baptism: Adult converts to Catholicism also receive the sacrament, unless they have already received a Christian baptism. (If there is any doubt about whether an adult has already been baptized, the priest will perform a conditional baptism. ) A person can only be baptized once as a Christian—if, say, he was baptized as a Lutheran, he cannot be rebaptized when he converts to Catholicism. While an adult can be baptized after proper instruction in the Faith, adult baptism normally occurs today as part of the Rite of Christian Initiation for Adults (RCIA) and is immediately followed by Confirmation and Communion. The Effects of the Sacrament of Baptism: Baptism has six primary effects, which are all supernatural graces: 1. The removal of the guilt of both Original Sin (the sin imparted to all mankind by the Fall of Adam and Eve in the Garden of Eden) and personal sin (the sins that we have committed ourselves). 2. The remission of all punishment that we owe because of sin, both temporal (in this world and in Purgatory) and eternal (the punishment that we would suffer in hell). 3. The infusion of grace in the form of sanctifying grace (the life of God within us); the seven gifts of the Holy Spirit; and the three theological virtues. 4. Becoming a part of Christ. 5. Becoming a part of the Church, which is the Mystical Body of Christ on earth. 6. Enabling participation in the sacraments, the priesthood of all believers, and the growth in grace. Question: What is Baptism? Christian denominations differ widely on their teachings about baptism. Some believe baptism accomplishes the washing away of sin. Others consider baptism a form of exorcism from evil spirits. Still others teach that baptism is an important step of obedience in the believer’s life, yet only an acknowledgment of the salvation experience already accomplished – baptism itself has no power to cleanse or save from sin. The following takes a look at the latter perspective called â€Å"Believer’s Baptism:† Answer: A general definition for the word baptism is â€Å"a rite of washing with water as a sign of religious purification and consecration. † This rite was practiced frequently in the Old Testament. It signified purity or cleansing from sin and devotion to God. Since baptism was first instituted in the Old Testament many have practiced it as a tradition yet have not fully understood its significance and meaning. In the New Testament, the significance of baptism is seen more clearly. John the Baptist was sent by God to spread the news of the coming Messiah—Jesus Christ. John was directed by God (John 1:33) to baptize those who accepted his message. John’s baptizing is called â€Å"a baptism of repentance for the forgiveness of sins. † Mark 1:4 (NIV). Those baptized by John acknowledged their sins and professed their faith that through the coming Messiah they would be forgiven. Baptism then is significant in that it represents the forgiveness and cleansing from sin that comes through faith in the Lord Jesus Christ. The Purpose of Baptism: Water Baptism identifies the believer with the Godhead – Father, Son & Holy Spirit. â€Å"Therefore go and make disciples of all nations, baptizing them in the name of the Father and of the Son and of the Holy Spirit. † Matthew 28:19 (NIV) †¢Water Baptism identifies the believer with Christ in His death, burial and resurrection. â€Å"When you came to Christ, you were â€Å"circumcised,â €  but not by a physical procedure. It was a spiritual procedure–the cutting away of your sinful nature. For you were buried with Christ when you were baptized. And with him you were raised to a new life because you trusted the mighty power of God, who raised Christ from the dead. † Colossians 2:11-12 (NLT) â€Å"We were therefore buried with Him through baptism into death in order that, just as Christ was raised from the dead through the glory of the Father, we too may live a new life. † Romans 6:4 (NIV) †¢Water Baptism is an act of obedience for the believer. It should be preceded by repentance, which simply means â€Å"change. † It is turning from our sin and selfishness to serve the Lord. It means placing our pride, our past and all of our possessions before the Lord. It is giving the control of our lives over to Him. â€Å"Peter replied, ‘Each of you must turn from your sins and turn to God, and be baptized in the name of Jesus Christ for the forgiveness of your sins. Then you will receive the gift of the Holy Spirit. ‘ Those who believed what Peter said were baptized and added to the church–about three thousand in all. † Acts 2:38, 41 (NLT) †¢Water Baptism is a public testimony – the outward confession of an inward experience. In baptism, we stand before witnesses confessing our identification with the Lord. †¢Water Baptism is a picture representing profound spiritual truth: Death – â€Å"I have been crucified with Christ and I no longer live, but Christ lives in me. The life I live in the body, I live by faith in the Son of God, who loved me and gave himself for me. † Galatians 2:20 (NIV) Resurrection – â€Å"We were therefore buried with Him through baptism into death in order that, just as Christ was raised from the dead through the glory of the father, we too may live a new life. If we have been united with Him like this in His death, we will certainly also be united with Him in His resurrection. † Romans 6:4-5 (NIV) â€Å"He died once to defeat sin, and now he lives for the glory of God. So you should consider yourselves dead to sin and able to live for the glory of God through Christ Jesus. Do not let sin control the way you live; do not give in to its lustful desires. Do not let any part of your body become a tool of wickedness, to be used for sinning. Instead, give yourselves completely to God since you have been given new life. And use your whole body as a tool to do what is right for the glory of God. † Romans 6:10-13 (NLT) Cleansing – â€Å"And this water symbolizes baptism that now saves you also – not the removal of dirt from the body but the pledge of a good conscience toward God. It saves you by the resurrection of Jesus Christ. † I Peter 3:21 (NIV) â€Å"But you were washed, you were sanctified, you were justified in the name of the Lord Jesus Christ and by the Spirit of our God. † I Corinthians 6:11 (NIV) Questions On Baptism Friday, October 10, 2003 Home Greetings! Initiation of a non-Christian into the Roman Catholic Church is celebrated in a Rite called â€Å"baptism†. In this rite, a person is either immersed in water, or sprinkled with water by another Christian who says, â€Å"I baptize you in the name of the Father, and of the Son, and of the Holy Spirit. What makes a baptism valid? Baptism is valid so long as water was used with the Trinitarian formula (See Mt 28:19 for the Trinitarian formula, and John 3:5 for the necessity of water). In an emergency, even tears or saliva could be used where running water is not present. Catholics believe that all people who have received water baptism in the Trinitarian formula are mysteriousl y united to the Church, and indwelt with the grace of Jesus Christ. What is grace? Grace is God’s favor, and more than this, it is the very life of God within a person through the Holy Spirit. With grace, three dispositions, or virtues are infused in the soul: faith, hope and love. God cannot co-exist with sin, and when we turn away from God, we can sin so badly as to cut off this flow of divine life within us. Catholics call this â€Å"mortal sin†, referring to the notion of deadly sin we find in 1 John 5:17. Yet, even when we sin mortally, the Council of Trent states that faith lingers in the soul to draw us back to Christ. Only blasphemy of the Holy Spirit – an ongoing and deliberate rejection of the free gift of grace – can damn us. We can trust teh one who started the work of salvation in us through baptism to bring it to completion. Is Baptism necessary for salvation? The Second Vatican Council affirms that the grace of baptism is necessary for salvation. Yet, the Council speaks of salvation outside, but not apart from the Church. Catholics believe that the grace of baptism is given through the rite itself, but is also provided to those who, through no fault of their own, have either never heard the Gospel, or heard the Gospel in a distorted manner so that they were unable to accept it. Many theologians (myself included) argue that anyone who has not actively rejected the Gospel as properly understood may be under the saving grace of baptismal grace. The Church has always maintained that the Old Testament prophets are counted among the saints in heaven. The Council of Trent affirmed that even prior to baptism, a grace called prevenient grace draws a person to baptism. Furthermore, the Church always taught that there is such a thing as baptism by desire. Traditionally, baptism of desire was used to refer to martyrs who were murdered while preparing for the rite of baptism. These various doctrines have lead theologians to the conclusion that there is saving grace available without strictly receiving water baptism. Yet, for a believer in Jesus Christ, it would make no sense to reject water baptism, since Christ himself was baptized and taught his disciples to baptize. In the early church, baptism was a public witness to becoming a Christian, and often a person was placing their life on the line by receiving the sacrament. To reject water baptism and claim to believe in Jesus is a contradiction, and in this sense, baptism is necessary for all believers. However, knowing that prevenient grace draws the sinner to the sacrament, many theologians today argue that there are two types of saving faith, and one depends on the other. Primordial faith is a trust in a vague and fuzzy awareness of divine holy mystery and openess to transcendant experience that goes beyond language. This faith is what begins the salvation process in us, and it is this grace that is spoken of when we say the grace of baptism is necessary for salvation. Many theologians since Karl Rahner argue that we are all born with the gift of such grace, even as we are all effected by original sin. If we respond to this grace, we seek language to describe the experience, and primordial faith is then translated into fiducial faith, which is the belief in a particular creed, doctrine, and set of religious practices. For the Catholic Christian, fiducial faith expresses itself and becomes actualized in cooperation with Christ through the sacraments. However, the non-Catholic may very well be saved by fiducial faith expressing primordial faith in a different cultural context. Who performs a baptism? Typically, a baptism is performed by a priests, but in an emergency, any Christian who has already received baptism can perform the rite. Catholics recognize the baptisms of other Christian demonimations as valid, so long as water was used, and the Trinitarian formula was followed. Catholics consider the rite of baptism to be a sacrament. Sacraments are outward signs of internal grace instituted by Christ and preserved in the Apostolic tradition. Catholics believe that Christ, himself, acts in each sacrament, so that even if a sacramental rite is performed by the worst sinner, the sacrament is valid. How often can baptism be received? Because it is the first step of initiation, baptism is only received one time in life, and Catholics do not believe anyone who has received a valid baptism needs to repeat it, even if the rite was performed before a person was fully mature, or the rite was by an imperfect person, or in a manner that was hasty or sloppy. Indeed, Catholics see it as a lack of faith to repeat baptism. At the same time, Catholics do bless themselves with holy water as they enter a church as a constant reminder of baptism. What are the effects of baptism? Perhaps the effects of baptism are best understood by looking at the symbolic meaning of the rite. Water is a natural symbol of birth, life, and cleanliness. It symbolizes birth as a mother’s water is broken. It symbolizes life as we need it for nourishment. It symbolizes cleanliness as we bathe daily with water. Water also symbolizes death, as we can drown in water. In Judaism, ritual baths and purifications symbolized that we were making ourselves presentable to God, the most high and most holy and pure being of all. According to the New Testament, the baptism of John, who preceded Jesus was a baptism of repentance. The word for repentance in Greek means conversion, and is rooted in the notion of turning a stiff neck. John seemed to use water baptism as a symbolic action to convey the notion of the hope to one day be immersed in the Spirit to be cleansed from sin to live a new life. John’s preaching was eschatological and forward looking, and painted a picture of cosmic conflict between good and evil. John’s baptism looked for the day when the Spirit would be poured forth like a river on the people to produce a change of heart. Jesus received the baptism of John, and many Bible scholars point to this incidence as evidence of a historical person named Jesus. According to the criteria of embarrassment, the early church would have no reason to invent this encounter, since the action implies John is greater than Jesus and that Jesus needed to repent. Many believers in Christianity are raised to believe that Jesus was baptized by John in order to provide us an example. However, this oversimplifies the issue, and implies that Jesus was play acting. Even a perfect person can and would have turning points in life if that person is fully human. A conversion experience does not always involve turning from sin to virtue. Rather, like a moth becoming a butterfly, a conversion experience can be growth from one stage of human development to another. The New Testament is clear that Jesus grew as a human person (See Luke 2:40). By receiving the baptism of John, Jesus reveals that he has fully entered the human condition. Like us, in his humanity, he longed to be immersed in the Holy Spirit and to grow and change. John preached that there would be one who come after him who would baptize with fire and Spirit. Having received the baptism of John, the growth or conversion that Jesus displayed was to begin to live as though the fullness of God’s reign was breaking into our world here and now, already present, but not fully present yet! There is some evidence in the New Testament that Jesus continued the ministry of baptism after John, and may have even rivaled John for a period (See John 4:1). However, where John was an ascetic preaching hell-fire and brimstone, Jesus preached that the reign of God was breaking in through mercy upon the marignalized. It is not that Jesus made no mention of hell. However, when he does mention hell, it is always in the context of the rigidly unforgiving, or those who commit heinous sins that hurt other people. For Jesus, it appears that baptism was transformed from a symbolic act that looked forward to a day of immersion in the Spirit, to a symbolic rite that made the Spirit present. In Jesus and his disciples, baptism truly became a rite of initiation for those who choose in the here and now to live in the reign of god breaking into our reality. By accepting the baptism of Jesus, one was chosing to live here and now as though God is your only king, and to trive for perfection. After the crucifixion and resurrection of Jesus, baptism took on new meaning. Under the inspiration of the Holy Spirit, Saint Paul called baptism an immersion in the death and resurrection of the Lord (See Romans 6:4 and Colossians 2:12). The author of 1 Peter refers to baptism as a cleansing. With Saint Augustine int he fourth century, the emphasis on the notion of bap tism as cleansing became critical in his debates with a monk named Pelegius. Pelegius believed that Christ saved us by offerring an example of perfection that we chose to follow by our own inherent goodness. Those who rejected Christ and refuse to imitate him are simply evil. Pelegius taught a crass works righteousness. Augustine, profoundly aware of his own sinfulness, countered that he could not even want to follow Christ if God had not given him the gift to desire Christ. Augustine, relying on Saint Paul, believed that we are saved by grace, and that grace enables us to imitate Christ. Augustine developed the concept of original sin to explain what he felt Paul was saying when Paul says all people are sinners due to Adam’s sin (see Romans 5:12). Augustine argued that grace is a completely free gift given to us while we are sinners, and through the gift, we are made righteous, with baptism symbolizing cleanliness and new birth. As a demonstration that he was interpreting the Scriptures correctly, Augustine wrote to Pelegius appealing to common tradition asking if what he was saying were not true, why does the Church baptize infants? So, the effect of baptism is that we die to our sinful selves to rise with him. Grace, the very life of Christ, is infused in the soul by the one who lives today! This new life is experienced as rebirth in water and Spirit. We are immersed int eh Holy Spirit so that live as sons of daughters of the great King of the universe, whose reign of peace and justice is breaking into the world through Christ acting in us. Why do Catholics baptize infants? Acts 10 speaks of the entire family of Cornelius, and the whole household, including his servants, receiving Peter and the Apostles to eventually become baptized. Catholics believe that the episode indicates the possibility that children were baptized within the New Testament period, since it is likely that Cornelius had children. Yet, there is no direct and unquestionable proof that infants were baptized in the New Testament. Many Protestant Christians argue that the symbolism of conversion and change is lost by performing baptism on infants, and that such batisms should be considered invalid. Catholics believe that in the early church, adult baptism was the norm as the Church reached out to new members. However, we saw above that Saint Augustine argued against the works righteousness of Pelegius by appealing to the already wide-spread and ancient tradition of infant baptism. Infant baptism may or may not not perfectly allow the recipient to experience grace as conversion. Yet, Catholics accept in faith that conversion is occurring even in the infant. For many Catholics, infant baptism is a response of gratitude to God for a child, and a celebration of birth. Parents naturally want to share their faith and culture with their children. As a rite of intitiation, baptism knits a person into that web of relationships that forms the Church – the Body of Christ. What Christian parent would not seek to have their child knit into this web of relationships? On a deeper theological level, Catholics speak of a real transformation taking place in the infant where all guilt of original sin is removed, and grace is infused in the soul conforming the child to Christ. Through baptism, a person is born again, and the effects of the sacraments last eternally! By offering the rite to an infant, we are emphasizing that grace is an absolutely free gift, not even earned by our desire for conversion or our intellectual undertsanding of what we receive. This may confuse many Protestants, who believe that Catholics teach works righteousness. The Catholic Church holds as infallible, according to Scripture, the local council of Orange, and the Ecumenical Council of Trent that salvation is by grace alone. However, Catholics believe that with new birth comes growth, and that with baptism, Christ’s life life is infused inthe soul to produce faith and works. Faith without works cannot save, and works without faith cannot save. Yet, the whole process of salvation is initiated as a free gift of Christ. See my essay Justification: Protestant or Catholic for more detail on this subject. In the New Testament, Paul speaks of laying hands on people after baptism, and James speaks of annointing people. The word â€Å"Christ† literally means â€Å"annointed†. Catholics generally believe that in the sacrament of confirmation (laying on of hands and annointing), a person is confirmed in the faith. This second sacrament completes initiation in the Catholic Church and is closely connected theologically to baptism, though separated by years in time for many Catholics. Adult converts receive the two sacraments together. This is usually done in young adulthood, and provides an opportunity for a similar experience to Protestant young adult conversion at baptism. Why do Catholics use the Trinitarian formula, and not the name of Jesus Personally, I am not sure that God considers the name of Jesus alone as an invalid baptism. However, there are denominations and churches separated from Rome who baptize in the name of Jesus only because they reject the doctrine of the Trinity. We saw above that the Trinitarian formula for baptism is Scriptural in Matthew 28:19. We know from early Church writings that the Trinitarian formula was used from most ancient times, and the doctrine was accepted as the correct interpretation of scripture by the world-wide Church at several Ecumneical Councils. Thus, Catholics believe that the Trinitarian formula is revealed through Scripture and Sacred Tradition to be a if not the correct way to do baptism. Since the issue arose late historically, and was clear attempt to break the unity of the Church, Catholics do require a new baptism for those who join s from a community that did not use the Trinitarian formula. Why do Catholics sprinkle instead of immersing? Immersion is the proper way to do baptism to convey the full symbolism of the sacrament. Sprinkling in the early church was only used for emergencies, such as impending death. As the Church expanded into Northern Europe, it is highly probable that cold weather caused Christians to turn more often to sprinkling. Irish missionaries may have carried the practic e back southward. The Church defends that baptism by sprinkling is valid. At teh same time, Vatican II called for a renewal and retrieval of the meaning of sacramental gestures so that the fullness of what was conveyed in the New Testament is mediated in the signs. I have seen more and more Catholic churches building baptismal fonts large enought to immerse an adult. In the future, I expect immersion to once again become the norm. One final point When John began baptizing, he warned his Jewish siblings that God could make children of Abraham from the stones. Receiving his baptism of repentence was useless if one was not changed by it. God always respects our freedom, and we are always free to reject and act against the grace that is given us. We do this when we sin. Catholics believe that God initiates the salvation as an absolutely free and unmerited gift that can start in an infant. Catholics believe that Christ acts in the sacrament, so that we can never say that baptism does not have an effect. Christ promised to act in every valid baptism. Even Adolf Hitler (who was baptized Catholic) was changed by the sacrament. (Think how much worse he may have been if his life were never touched by grace! Yet, knowing that every baptism has an effect on the recipient, and trusting individually that the One who died for me and began a work for me in baptism wants to bring it to completion, I must respond to him! John’s warning to the children of Abraham is still true for Christians. We must, by God’s continued outpouring of grace, receive the Lordship of Christ and allow his will to shape our lives and contin ually change us. While baptism always has an effect, not everyone who has been bapized is absolutely assured slavation.

Proessionals Responsibility To The Society Essay

Professionals should not restrict their work to their work place only. Instead they should extend it to the community in which they operate. Professionals can be involved in the society in many ways which include education, economic empowerment and creation of international links. Professionals have a wider understanding of the contemporary affairs. This knowledge can be used to educate the society on its civil rights, how to respond to social challenges and enlightening them on the national and international affairs. The society expects the professionals to use their knowledge and understanding of these matters to help them to be better braced to face challenges in the society. Education can be done through seminars, awareness meeting and mobilizations in order to enable the people to live together harmoniously. The society needs awareness in matters of gender parity, respect for religious and racial differences within the community and other social matters as may be violated in the society. Another area of education is how to utilize the natural resources sustainably since ignorance of such a serious matter can cause drastic effects on people. Â  Professionals can also contribute to the economic empowerment of the society through many ways. They can either directly or indirectly take part in activities aimed at developing people economically in the society. They can do this by proving the necessary conducive environment that can enable people in the society to realize their full potential. In empowering people, professionals have the obligation to enlighten the society on the factors of production available to them and how to look for market for their goods. They can also contribute directly by building schools, factories and medical facilities where people in the community can access them easily. Professionals are in a better position, due to their experience and knowledge, to identify talents in the society. Such talents can be developed and promoted in order to enable be people to live to their potentials. Organization of sporting activities and meet people campaigns are some of the activities which can be used to achieve this. At the same time professionals can use their knowledge to provide carrier counseling for students within the community in which they work. This can help them in choosing their carriers hence empowering them economically in future. Â  Professionals can help to link the society with the outside world. Since they have a better understanding of the culture, believes and economic activities of other people, they can enlighten the society not only on how to interact but also areas of interaction that can realize maximum returns out of such interactions. They can be involved in exchange programs in fields of education, business and culture to mention but a few. This can promote international understanding and cooperation among different countries. Â  Journalists are supposed to provide information to the society. However, this can be difficult in societies where the living standards are low. It becomes difficult for people to access the information due to poverty levels. At the same time some in some countries there is lack of freedom to journalists. They are limited on what they can report. While fighting for their rights, they should fight for the rights of the society as well. Â  Teachers on the other hand are supposed to reduce illiteracy level in the society but this is made difficult by the fact that education is expensive in some countries. Cultural reasons also water their efforts to lighten the society through education. Â  Lawyers can be of benefit to the society by promoting civil rights in the society but their work is hindered mostly by cultural and reasons. Some practices which violate human rights are in most cases valued highly by people in the society. Failure to report of injustices committed in the society also contributes to the difficulties the lawyers face in carrying out their responsibility to the society. Â  Reference: 1). www.internews.org/global/gov/default.shtm 2). www.americanpressinstitute.org/pages/resources/2005/07/

Reflection on a clinical skill Essay

This essay will discuss a clinical experience in which I feel more competent in practicing. I will use a reflective model to discuss how I have achieved the necessary level of competence in my nurse training programme.The reflective model I have chosen to use is Gibbs model (Gibbs 1988). Gibbs model of reflection incorporates the following: description, feelings, evaluation, analysis, conclusion and an action plan (Gibbs 1988). The model will help facilitate critical thought process as it relates theory to practice. Discussion will include the knowledge underpinning practice and the evidence base for the clinical skill. A conclusion to the essay will then be given which will discuss my reflection skills, acknowledge my competence and show my personal and professional development. Trigger Event The clinical skill I have chosen to reflect on within this essay is my first IV start. I have chosen this as my first clinical placement is on a surgical unit, where Intravenous therapy is a widely used to administer medication. I was very happy to finally be able to start developing this skill as I have seen it done several time and was ever able to acquire the process in which is needed to start an intravenous. Appraisal The first stage of Gibbs (1988) model of reflection requires a description of events. As a transitioning Registered Practical Nurse to a Registered Nurse the expectation are that I will have develop this scope in my practice. I had observed this clinical skill on a variety of occasions and had previously administered IV medication and antibiotics under supervision. On this occasion I was being observed by my clinical educator. I had gathered all the necessary things I needed which included a bag of normal saline. My clinical educator was talk me through the procedure step by step and informed me that I should never place the tape on any surface as tit leads to cross contamination, and I should always clean blood from around the IV site. The facility also uses chlorhexadine instead of alcohol as eliminates stinging sensation. The second stage of Gibbs (1988) model of reflection, which is a discussion about my thoughts and feelings. I was aware of being under the supervision of my educator and other classmates this made me feel  very nervous and self- conscious. Once my professor said I am in do not advance I realize how truly nervous and under pressure I was feeling. I held my breath as I did not want this vain to blow and have to stink the patient again. This patient was an elderly gentlemen and I did not want the patient to feel that I did not know what I was doing. I thought that as I had been observed this clinical procedure on many other occasions it would be easy for me to do but it was very challenging, finding an appropriate vain, the right size of needle and wanting to get success on my first try made this a very trying experience. Exploration Evaluation is the third stage of Gibbs (1988) model of reflection and requires the reflector to with state what was good and bad about the event. This experience was filled with emotion because for many years I have been an rpn and I always wanted to be able to start an IV and I finally got to do just that. I think the best thing about this experience is I got it the first time and my instructor made it seem so effortless. So many times I had place tape on the hand rail of a bed in preparation of taping a dressing, I never thought of the fact that I was taking all the germs from that rail onto the patient. This one little thing has caused me to change my present practice. Integration Stage four of Gibbs (1988) is an analysis of the event, where Gibbs encourages the reflector to make sense of the situation. I will do this by exploring the skill and look for other opportunities to get more starts that I will feel more confident in my practice. In conclusion the use of this model of reflection has helped me to structure my thoughts and feelings appropriately. My level of awareness concerning evidence based practice, and its importance, has been enhanced with the use of critical reflection. My competence, within this clinical skill, has been further developed and I now feel that my personal and professional development is progressing. Using this reflective model has helped me to realise that my learning is something which I must be proactive in. Furthermore as a student nurse I have recognised that reflection is an important learning tool in practice.

International Terrorism Essay Example | Topics and Well Written Essays - 1000 words

International Terrorism - Essay Example In addition, U.S. intelligence reports say that Hezbollah cells operate in Europe, Africa, South America, and North America. Despite Israel's 2000 withdrawal from Lebanon, Hezbollah continues to periodically shell Israeli forces in the disputed Shebaa Farms border zone. Jihad is a spiritual war fought for the cause of preserving religion. It has a great significance in the lives of Muslims. Like any language, Arabic has unique words which have a particular meaning which cannot be translated precisely. The best translation known for such a word is the following: a sincere and noticeable effort (for good); an all true and unselfish striving for spiritual good. Jihad as presented in theQuranand any ofthe other scriptures implies the striving of spiritual good. Thereby Jihad can not be called as a terrorist activity it is simply a tool for safeguarding the religious rights. This Jihad particularly involves change in one's self and mentality. It may concern the sacrifice of material property, social class and even emotional comfort solely for the salvation and worship of 'God alone'. As a result, one who practices Jihad will gain tremendously in the Hereafter. Question 3 (Osama bin Laden and rise of Al-Qaeda) Osama bin Laden is key role player in this world. He is the leader of a small organization working at a massive scale. He is considered to be the most dangerous terrorist in the world. Bin Laden joined the Afghan resistance in 1979 and became a commander in the guerilla wars against the Soviet Union in the 1980s. After that war ended, bin Laden founded a loose organization of pro-Islamic terrorists known as al-Qaeda. Bin laden has been the main source of terror in the US. After the Soviet... The researcher mentiones that Hamas is that it is a militant antipeace process organization, bent on Israel's total destruction and the establishment of a Palestinian State - an Islamic theocracy - in Israel’s place. Hamas has been actively involved in breaching peace for the Palestinians how ever its initiative are against Israel and they show themselves as the global enemy of Israel thus threatening to remove the state of Israel from the map. Hezbollah is a Lebanese umbrella organization of radical ‘Islamic Shiite’ groups and organizations. It opposes the West, seeks to create a Muslim fundamentalist state modeled on Iran, and is a bitter foe of Israel. Hezbollah, whose name means â€Å"party of God,† is a terrorist group believed responsible for nearly 200 attacks since 1982 that have killed more than 800 people, according to the Terrorism Knowledge Base. Osama bin Laden is key role player in this world. He is the leader of a small organization working a t a massive scale. He is considered to be the most dangerous terrorist in the world. Bin Laden joined the Afghan resistance in 1979. The researcher then concluds that it is hard to negotiate with such organizations as they are strongly religious and no one can make an extremist understand easily as the extremist will do anything in order to prove his right and worth. As far as bin Laden is concerned, he is from a tribal family which again makes him a rigid man, a man of principles, which he will never forego who emphasized his desire to secure the withdrawal of U.S.

Joural 4 Essay Example | Topics and Well Written Essays - 750 words

Joural 4 - Essay Example This film is a black feature film consisting of a vast cast. The main character is of Zeke (Daniel L. Haynes) and Chick, (Nina McKinney). The most important feature of this film lies on the fact that it consists of the first American African cast showing few element of prejudice against blacks that they are uneducated, and unethical individuals, but the narration of the film supersedes these negative features because the cinematography and music was widely appreciated by all. As it was first African American film, it posed as a risky release and thus, it was not made to release in all the states though the main motive behind Vidor’s creation was to instill awareness among youth and reduce the stereotyped mindsets regarding blacks. This film was included in National Film Preservation Board in 2008. â€Å"Hellelujah† was musical which Vidor directed. The film had significant features of black entertainment that represented the low classes of Blacks of that era. In terms of visual aspects, it was portrayed remarkably as Vidor experimented in the film; it was screened in Tennessee and Arkansas, where there was no interruption from new formed sound engineers at that time. There were other amazing attributes in the film; for instance, camera fluidity that showed through the sequences in the film, they was a first shot, and then the sound was added in the sequence. Moreover, though in that era, it was difficult to retain shots but Vidor was able to depict soft images of fields, the sequence of church meeting and the scene of the swamps were all portrayed beautifully. These scenes of cotton processing where there were paddle wheel sequences have a profound impact on the audience. It also has some kind of documentary feel to the film even though it has a narrative story line. The Actress, Nina Mae Mckinnney’s role is carried out with perfection even though she was very young, about 16 years old at that time when the

Recognizing and Managing Asymptomatic Left Ventricular Dysfunction Research Paper

Recognizing and Managing Asymptomatic Left Ventricular Dysfunction after Myocardial Infarction - Research Paper Example I agree with this thesis particularly because the absence of symptoms or signs of LVSD in myocardial infarctions makes a timely diagnosis of the condition to be significantly crucial for the survival of the affected patients. Epidemiological data on the etiology of Asymptomatic left ventricular Dysfunction in Europe and America suggests that nearly 60% of patients develop the condition after suffering from myocardial infarction. According to Gheorghiade  and Bonow (1998), â€Å"myocardial infarctions survivors usually have an increased risk of LVSD.† Consequently proper and early disease management models should be established to ensure cases of the disease are detected and managed effectively. Similarly, a number of critical pathways can now be effectively used to improve detection and detection of asymptomatic LVSD. On the other hand, one-half of LVSD patients are asymptomatic. In this regard, the early detection and management of the condition in post-myocardial patients can significantly help nurses to reduce mortality in the asymptomatic cases. Some of the evidence-based practices and techniques employed in the early diagnosis of the disease include radionuclide imaging, echocardiography, and ventriculography (Goldberg  and Jessup, 2006). All these strategies are important in the intervention of the dysfunction and the improvement of the quality of life in the affected patients. A number of evidence-based practices can be employed in the assessment of LVSD in patients who have suffered from myocardial infarction. One of the effective multidisciplinary approaches is carrying out an assessment of the disease in myocardial infarction survivors (Timmins and Kaliszer, 2001). Additionally educating such patients on their conditions can help doctors and clinicians to detect and prevent some the risk factors that may increase progression to heart failure.

Strategy in practice Essay Example | Topics and Well Written Essays - 3000 words - 1

Strategy in practice - Essay Example At this point emphasis should be made to the following fact: the strategy is not set by any member of the organization; it can be only defined by the organization’s leader (De Wit and Meyer 2010, p.502). Of course, other members of the organization, such as line managers, can have a role in the formulation of organization strategy but this role is limited, usually referring to the provision of information for the performance/ problems of their unit (De Wit and Meyer 2010, p.502). When setting the strategy of the organization leaders can take into consideration the comments of employees in various organizational departments; these comments can affect the organization’s strategy only at the level that the leader of the organization will decide (De Wit and Meyer 2010, p.502). The most important characteristic of strategy is the following: it refers to ‘all functions and parts of the organization’ (Toma 2010, p.16-17). Nestle was first established in Switzerland in 1866 (Nestle, Organizational website, History). Through the decades the company has managed to expand globally, a strategy that has been followed by the increase of the business objectives/ areas of operations. Indeed, in 1866 Nestle has been solely a milk factory; today the business is considered as one of the leaders in the food industry in general (Nestle, Organizational website, History). The strategy of Nestle is incorporated in a graph presented through the organizational website (Figure 1, Appendices). According to the particular graph the strategy of Nestle is divided into three parts (Organizational website, Strategy): a) the firm’s Competitive Advantages; the R&D department of the organization and its extended portfolio of brands are considered as the firm’s major advantages, b) the Growth Drivers: in this category emphasis is given to the firm’s reputation as a firm promoting health through its high-quality food products. At the same

Identify the ethical issues within the field of Information Technology Essay

Identify the ethical issues within the field of Information Technology - Essay Example A number of ethical concerns are associated with implementing the proposed integration project. Firstly, Accounting software, Graphic design software, operating systems, and virus guards can be purchased from unauthorized venders at a lower price. This is an act of violating laws regarding copy right, patents and trade secret. In addition using low price software which closely resembles the originals is also unethical. Such software can be associated with plagiarism, reverse engineering, open source code and cybersquatting(Ethics in Information Technology - Auburn University). Secondly, employees are responsible for using firm’s computers, internet facility, software and other appliances solely for the purpose of fulfilling the duties assigned to them. This is important to increase firm’s productivity (431). Workers are also expected to avoid unauthorized using of firm’s computers and confidential data. Accounting firm’s administration cannot rely only on trust for security issues like this while in the process of integrating with a different firm. On the one hand employees of two firms adapt to changing organizational structure after a certain time period. Organizational disputes can happen during this time period (Schein, 2004 ). On the other hand newly established firm has a larger number of employees. Firms use low cost and convenient IT solutions to monitor and supervise a large number of employees. New computers that are provided under this project will be linked via a computer network system. This shared network system can be used to obtain high speed internet facility to all the computers in firm. There are unauthorized means of using shared internet connections. Ethical procedure is purchasing an appropriate package from an Internet Service Provider. Networking is also important for increasing resource use efficiency of the firm such as printers (314). In addition, accessing to websites such as Facebook, YouTube eBay and

Project Management Essay Example | Topics and Well Written Essays - 3000 words - 2

Project Management - Essay Example They can be defined as groups or individuals having interest in the project and that interest can be good or bad influence the results of the project Pinto (2010) . In that case stakeholder analysis can be used to identify and resolve some of the conflicts that arise while introducing any new project. This analysis is used to make strategies to make the stakeholders’ impact positive on the project. Some stake holders can have varying impacts on projects ranging from drastic impact to little impact. For example Pinto (2010), gives an example by explaining that government can strictly limit the sales of any tobacco project by implementing different rules and regulations while on the other hand a software development company may not face that strict rules and regulations by the same stakeholder. Every stakeholder has own demand which may be in conflict with other stakeholder’s demand and the conflict of demands may prove to be challenging for the project manager (Kuenkel et al, 2011). For example, a team of any project working to repair a new software across organization can go for many revisions to check the satisfaction of their customers and in doing so may make other stakeholders uneasy by rescheduling the deadline again and again that might be a challenge for the project manager. In these cases, the project manager needs to balance the demands of all the stakeholders by maintaining supportive relationship among all the stakeholders. There are two types of stakeholders i.e. internal stakeholders such as top management, accountant, project team members and other functional managers. External stakeholders such as clients, competitors, suppliers, environmental, political and other invervenor groups (Pryke, 2006). Internal stakeholders are important in a stakeholder analysis and usually they affect the project positively because in most cases the internal stakeholders want the project to be successfully completed (Poonia, 2010). External

Writing a Rabbi Sermon Research Paper Example | Topics and Well Written Essays - 750 words

Writing a Rabbi Sermon - Research Paper Example The word Hanukkah signifies re-dedication and celebrates the Jews fight for religious sovereignty. Hanukkah is the celebration of Lights for the Jews, and it goes back to more than two thousand years before the start of Christianity. The Jews light the Menorah to commemorate the time when the Maccabees regained back the control of the Holy Temple from their captors. The conquerors had done nasty things to taint the Temple, including bringing gods; the Maccabees re-established the cleanliness and the service of the house of G-d. The Maccabees had only one small flask of the special olive oil in their possession which they used for lighting the large golden Menorah. Unbelievably, the little bottle was used for eight days. Three different blessings are recited before lighting on the first night of Chanukah; the modern day Rabbis can also recite the blessings in their families. The three blessings are: The Chanukah menorah is put on after nightfall; it implies that every Jewish role is to light the darkness of the world. It can be hard for rabbis to identify with godliness in their daily lives, but Chanukah reminds everyone that the light of understanding can shine brightly. The Chanukah light can be lit in the doorway or front window in order for it to be seen by people passing on the street. It teaches all believers that it is not sufficient to bring light into their private domain; they must spread the light of Torah to other people as well, to the degree that their influence can go. For every night of Chanukah, participants added light to the menorah, till the lamps shone on the last night. It symbolizes that in issues concerning holiness; every person should always be increasing. Each additional flame must signify added strength in solidifying our dedication to the significances and customs of the Jewish way of life. Every day must be used to rededicate our lives to a noble course that signifies our faith. As Chanukah is a holiday of re-dedication, we

Evolution in Law Systems Essay Example | Topics and Well Written Essays - 2250 words

Evolution in Law Systems - Essay Example The initial quality is belief. The investors, the banks and the further financial institutions and mediators desire to discern that a contract is a contract. They moreover wish to identify what the accurate compulsions of the team are, the facts of the contracts, the position and process of expense, the therapy in the occasion of the instance which resolves the worth of their financial resources. The valid regulations of law have to lessen the aspects of indecision also make circumstances more convenient. Therefore, dealings are easier also inexpensive to close and execute. The quality of belief within individual dealings, guides to the quality of inevitability within the lawful also official system on the whole. Financial marketplaces in addition to trade people depend on the inevitability of the lawful structure. A conventional lawful structure plus scheme of law can forever be depended upon, within that valid rules plus lawful averages will take place also relate in the means anticipated. Therefore, organizations, person's also financial institutions are at all times competent of scheduling for the potential and venture prospects are not disturbed by the alterations within the decree. The qThe qualities of belief and inevitability within the lawful structure are always hailed also facilitates or eases the formation of burly investment prospects plus the market for venture with monetary assets. Nevertheless an evenly important rate is the aptitude of the lawful structure to facilitate the element of novelty. Modernization is assisted by elasticity within the legal structure, which is a third basic quality of a competent moreover victorious scheme of financial as well as commercial law. A flexible legal structure supports alteration within the marketplace circumstances and conditions that facilitate the capitalists, savers, investors and economic institutions to act in response efficiently and rapidly. The fourth basic quality of a flourishing and efficient system of law relating to finance is the ability of the law to support and facilitate specialized legal techniques to deal with special technical needs of the financial industry. A typical example of the capability of financial law to accomplish this intention which is the maturity of the lawful structure overriding the financial also the payment mechanisms like the cheques or bonds. Evolution of English financial law: The law of contracts is one of the most essential characteristics of the legal system, which is an indispensable circumstance for the function of some marketplaces, together with the financial markets. Evoking the fact that a contract is basically a pledge otherwise a set of pledges to execute an action or else skip to act, for the breach of contract, for which the regulation provides a remedy, and identifies it as a duty. The elements of reassurances are, certainly, all over within the financial marketplaces. The consumer might place cash within the bank. The depository pledges to give back the cash to the client upon the client's insistence otherwise to a different individual upon the client's request.

OSHA and the Automotive Workplace Essay Example for Free

OSHA and the Automotive Workplace Essay There are materials used in the automotive industry that are considered highly combustible and can easily catch fire once exposed to such element. Proper handling should be studied well and implemented depending upon the flammability of the material. On the contrary, mishandling of these substances will present risks to people’s lives and assets’ damages. There are classifications made by the concerned agencies with respect to the types of handling risks. A certain department in the United States regulated the shipping procedures of these highly flammable materials. Fire department directive allows containers up to 227 litres for material classes that are considered as explosives. These solvent containers are made up of metals intended for transport of these substances. For highly volatile and flammable materials, tight enclosures are applied to prevent leaks. Proper specifications are set by the concerned department including the maximum allowable amount for every container and other specified parameters. After filling up the containers, proper labeling is the next step. Labeling should include the name of the substance inside the container and the class level of the material to be transported. Safety reminders and other precautionary signs should also be included in labeling the vessel of such highly flammable materials. Conditions of the materials that might cooperate seriously with combustible and flammable liquids must be store separately from them. In particular, oxidizing subsances must be stored independently with other less hazardous to people. What’s more important to every engineer is that planning to build their career working on this line of business. Accidents are unavoidable but less regulated system in dealing with carriages of very sensitive substnaces would attract more of that. Risks can be avoided when all the rules and policies were followed thoroughly. By then, standardized approach can be done in handling highly flammable materials and substances.

Uk Chocolate Market Analysis Marketing Plan Marketing Essay

Uk Chocolate Market Analysis Marketing Plan Marketing Essay UK chocolate market is considered the 2nd largest market amongst the EU after Germany, with an average consumption between 4kg to 10kg per head. Not only UK is among greatest chocolate consumers in EU but also holds highest share on sales of confectionery market since 2003. Average annual growth rates in last few years in chocolate market show an increasing trend in volume sales reaching  £4.83bn, and expected to reach up to 684,000 tons till end of 2010, growing at rate of 2.4%. The changing consumer purchase patterns towards how products are produced in terms of their impact on environment and health are considered factors on which future market growth of chocolate will be depending on. For this reason the confectionery and chocolate market has started struggling due to the lobby created by healthy eating, health conscious community. The organic chocolate market is thus becoming the recent trend for consumers because of the increasing awareness of the economic and environmental concerns surrounding cocoa production. These changes are well monitored by market players whose response towards these changes is evident from entering of organic companies into chocolate market and big conventional manufacturers investments in the processing of organic chocolates. Yet, although organic chocolate markets expected to grow at exceptional growth rates, the sector is still niche market when compared to the conventional and possess very little share in the total chocolate market. Moreover, with the squeeze on disposable incomes, an increased focus on price, the buy one get one free offers have been replaced with special price, multibuy and round-pound type deals. Continuous innovations in rival sectors such as biscuits and cakes etc are offering tough challenges for chocolate market. The outlook for the market still remains positive, but chocolate brands need strong effort in terms of providing customers with high value and healthy products. The major players of Chocolate in UK market fighting neck to neck in the battle of market share are Cadbury Kraft, combined market share of around 40%, after Cadburys takeover by Kraft. Mars, market share of 15% and turnover of more than 9.6 billion pounds Nestle Kitkat, market share of 20.4% Green Blacks, market share of around 5 % in conventional and more than 90% share in organic chocolate market For the information regarding the current trends in UK chocolate market , it is evident that the focus of communities are now towards healthy eating for which they now are conscious as of what ingredients are their products made up of. Thus if a company desires to enter chocolate market in such demanding trends where customers have full range of variety to choose from the safest path to choose will be organic chocolate market. This would be safer in that sense that as trends of people are shifting from only fun and enjoyment food towards healthy safe food, soon it is expected that the conventional market leaders will also be converting existing brands to organic and natural ingredients used products. Market Segmentation, Targeting and Positioning For this section statistic data about consumer attitude towards chocolate in UK by age, sex, social grade etc is required. This data is available in Keynote market research report to which there is no access from here. However , I have tried my best to broadly describe the target segment but still as per requirement of the instructor, detailed data figures are required. The organic chocolate market is considered amongst those popular opportunities which have been derived by changing consumer trends and liking towards healthier and environmentally safer food items, specifically the focus on use of healthier and environmentally safer ingredients. Consumers driving growth According to a market research demand for organic food items including organic chocolate is spread across the social spectrum, including workers, pensioners, students and people on benefits, and accounts for almost 33% of their total spending. For the purpose of our organic chocolate segment a significant portion of worker and student class will be our main target market segment. Descriptive Data For Organic chocolate market segment, as a new entrant our target market would include working class and students. The total population of UK is divided into following age group segments: For our organic chocolate segment, we would target population ranging from year 10 to 44. This would account for almost 48% of the total population of UK , obviously the whole 48% will not be part of our target market as organic chocolate is a niche of conventional chocolate market, our working and student class will be covered in these age group description. So as an estimate organic chocolate demand can be expected from 40% of the 48% target population. Socio-demographic Description The segment aimed as target segment will be people living in North West of England. This is so as we are initially introducing our product in test market covering NW of England only. Target customers will be in age group of year 10 to approximately 44. Children below 10 are essentially not part of our target segment because it requires awareness to choose healthy food items for which reason children above year 10 are selected. The age limit selected till 44 is for the reason that above this age group most people are suffering from heart and diabetic deceases thus for them at a later stage diet or low sugar items shall be introduced. Target segment will be constituting of students and working class. Psychographic/behavioral Description Our chosen segment is people with health conscious attitudes and preference towards safe and healthy food. This segment has awareness about environmental issues also and thus do not have wild fun loving lifestyle but a graceful lifestyle with healthy and enjoyable eating patterns. Positioning The current segmentation in UK chocolate market described in view of a perceptual map is shown below: Thus we will be positioning our product in high quality depicting its healthy making nut that much high price. It will be positioned similar to milk tray shown above in figure but bit higher in quality. Product Specification and Branding Strategy There are already few very popular organic chocolate brands in UK including Green and Blacks which holds a very significant share in organic chocolate market. Thus the introduction of our organic chocolate brand needs some cutting edge or competitive advantage over others. We will introduce this difference with providing our organic chocolate lovers a variety of combinations and natural healthy flavors in our chocolate products. First of all, our brand choco naturals will be classified in three ranges targeting three set of places with different usage style. Organic chocolate bars After dinner mints items Organic chocolate gift boxes The basic composition and ingredients of all three variety of our brand will be almost same, i.e. Dark Chocolate dark bitter chocolate made from 70% organic cocoa solids, brown cane sugar, vanilla and soya lecithin Semisweet Chocolate- organic sugar, organic chocolate, organic cocoa butter, organic flavors, milk fat and soya lecithin White Chocolate- no cocoa solids, but organic cocoa butter, sugar, vanilla and milk On this basic organic composition of our brand the cutting edge would be its natural and healthy flavoring and combo mixing of white and dark chocolates. The conventional choco bars available in market have introduced all kind of variety including nuts, wafers, biscuits etc, but as our brand is providing its customers with chocolate that is good for health also we will enhance their flavor and appetite by mixing fruit chunks in our brands and good cholesterol nuts i.e. almonds and walnuts. Moreover providing combo mixing of dark and white chocolate will deliver chocolate lovers taste of two in one and with added advantage of health benefits of dark chocolate. Our products will be offered in following sizes and weights Organic chocolate bars Initially as we are introducing our brand in test market we will only supply bars in 2 sizes i.e. 50g bar and 100g bar After dinner mint items These will be offered in round balls 100 g each to popular hotels and restaurants to serve their customers as after dinner items and will be provided with fruit chunks and combo variety explained above Organic chocolate gift items For our test market this will also be provided in two sizes i.e. 1 lb and 1  ½ lb box packing As the specialty of this brand of chocolate lies in it being healthier, close to nature and for those who have high concern for health and environment , we will have high focus of packaging choco naturals_ chocolates in an environmentally friendly rappers which are biodegradable packaging and have zero waste components. Our three line of products will be properly labeled describing components and all details regarding calories, fats etc. As the brand has high insistence on being organic, the design of packaging of chocolates will show the making of chocolate from most natural and organic ingredients through its color and style creating a warm connection with those who love being close to nature, adding value for them. Developing Brand Personality As an introductory brand it is one of the most important responsibilities of us to define our brand and portraying its strengths which meet all standards set by the market. These include the consistency in taste and quality delivered etc. When developing brand identity consistent delivery of the value must match promises made to target customers. The logo, mark, theme line, and look and feel as part of choco naturals identity will create a recognition in the minds of our target customers and will make them remember choco naturals. As choco naturals_ chocolates are made from fully organic ingredients with an added combination of natural fruit chunks that enhance the product benefits, the logo will depict such closeness to nature, health and taste. Similarly the mark and theme line will deliver same identity of the product. Creating brand identity begins with having a clear idea of target customers. When a customer decides which brand they prefer to buy they have many considerations in mind including its price , quality, benefits but the final thing which eventually wins is the brands identity created in the mind of the customer. This if carefully developed, as in our case that choco naturals chocolates reflects the attributes and preferences of its target customers will make choco naturals chocolate win over other conventional brands. choco naturals chocolates will be developed as a sophisticated brand which is aimed as providing taste with health. Pricing Strategy and Price Strategy to opt: Of the many pricing strategies, for choco naturals chocolates, four strategies are of value. These are Competition based pricing Market oriented pricing Premium pricing Psychological pricing We will chose a combination of market oriented and psychological pricing. Premium pricing could also be opted but as our target market also includes students and worker class, it might create a luxury brand image which might effect the closeness we want our brand to develop with target customers. Similarly competition based pricing method would have also been a very safe strategy but for having an added value, we choose market oriented pricing which is based on analysis and research of target customers and on those prices if the effect of psychological pricing is also added it is expected to create more value for our products. Pricing objectives: Purpose of choosing this combination of pricing strategy is to provide such a price to the customers which is not too high to loose connection from target customers and not too low that can portray the brand as a low standard brand. The objective is to set such a price that can portray our target customers the essence of the organic image our brand portrays i.e. natural. In terms of sales, this strategy for pricing is expected to create a healthy market share in organic chocolate market at a good pace and constant increase in level of sales and profit. The positioning of this brand will also support this pricing strategy. Recommended Price: Organic Chocolate Bar 100g  £2.95 50g  £ 1.95 After dinner mints Pack of 4 round balls 100g each for  £6.95 Organic chocolate Gift boxes ( combo mix of dark white and multi flavored fruit chunks) 1 lb  £19.95 1  ½ lb  £ 29.95 Retail Distribution Strategy As we are introducing 3 categories in organic chocolate brand, the distribution will to 3 different type of outlets. These are: Organic Chocolate bars Large super stores and coffee and tea cafes After dinner mints Three to five star Hotels Organic Chocolate gift boxes Large super stores As initially we are introducing our brand in test market, choco naturals chocolate will be available in stores, cafes and hotels in north west of England mainly. The super stores which will sale our products include Sainburys super market Ltd, having 5 outlets in NEW Tesco, having 9 outlets in NWE Woo Sand super market, having 1 outlet in NWE ASDA Stores Ltd, having 6 stores in NWE WM Morrison supermarkets, having 6 stores in NWE The selective Hotels in which we would initially supply our after dinner mints will be some three to five star hotels with good reputations so that association of our brand with such names can deliver positive impression of our brand to the segment of our target market visiting those hotels. These include: Holiday Inn Hard Days Night Hotel Beech Mount Hotel Feathers Hotel Trout Beck Inn Hotel Park House Hotel We will be opting selective distribution strategy to make our products available to our target market. The product will not be massively available as we initially want to access response from test market and moreover the sophistication of our product might get distracted if it gets available in each and every store. Thus at start selective supermarkets, hotels and cafes will offer our products to customers so that the brand may create its image with the help of the image of the places these are available at. Our products will not be available at web based distribution sources as it initially requires to develop a status in local market and then be available at global level. Integrated Marketing Communications Strategy The integrated marketing strategy we have planned for our product is hitting the market segment in North West in selective ways. We are not going for the guerilla marketing tactics because its high quality product and market is not very wide. We have to introduce the product and usually the products in the early stages of their Product life cycle need careful tactics for marketing and advertising because profit margins are lower therefore selective media should be used instead of using the short gun approach. The main objective behind our campaign is to introduce our product and its benefits along with creating brand identity. We will focus our attention in the initial phase of the campaign to create awareness about our product in the native market (North West of England). In this phase we will tell our customers about the value we will deliver. In the second phase of our campaign we will emphasize on promotion and advertisement of our brand. First phase would help us to identify again the interested segment so in the second phase we will scrutinize and promote to our potential valuable customers. For promoting our brand we are not using all the tools of integrated marketing communication strategy which are advertising, sales promotions, direct marketing, website and public relations). We are going to use only advertising, direct marketing and we will create our website as well. For advertising we will select the print and electronic media for print media we will only advertise in best selling food journals and news-letters of Northwest. For electronic media we make a 45sec. advertisement. We will use celebrity endorsement in our advertisement. The celebrity we will use would be environmentalist and heads of NGOs promoting nature friendly products. We will air our ads on food based local channels for the middle aged women and men and music and music based and entertainment channels for youngsters slots would be prime time. We would go for cooperative advertisement. We will not go for sales promotions because its a high quality product and sales promotions would give a negative impact. For direct selling we will hire a team which would convince the customers. Our customers for after dinner mints would be owners of famous cafes and restaurants. In initial days we will use mall intercepts in large super stores and departmental stores offering organic products. Public relations is mostly done for service sector so it wont make any significant impact here but in later stages when there would be larger sales volume then we will introduce PR for our premium customers. In later stages we will also conduct seminars for creating awareness of organic food but in initial phase profit margins are too low. We would create a website for promotion but not for sale because customers are very conscious in trying a new product and for a product like chocolate it wont work at all. In maturation phase when customer response would be good we may go for online dealing. So in our IMC our focus in print media would be on chocolate bars, in electronic media it would be more on gift items. And in direct selling we would promote after dinner mints and gift items but the whole campaign would promote the brand.

VaR Models in Predicting Equity Market Risk

VaR Models in Predicting Equity Market Risk Chapter 3 Research Design This chapter represents how to apply proposed VaR models in predicting equity market risk. Basically, the thesis first outlines the collected empirical data. We next focus on verifying assumptions usually engaged in the VaR models and then identifying whether the data characteristics are in line with these assumptions through examining the observed data. Various VaR models are subsequently discussed, beginning with the non-parametric approach (the historical simulation model) and followed by the parametric approaches under different distributional assumptions of returns and intentionally with the combination of the Cornish-Fisher Expansion technique. Finally, backtesting techniques are employed to value the performance of the suggested VaR models. 3.1. Data The data used in the study are financial time series that reflect the daily historical price changes for two single equity index assets, including the FTSE 100 index of the UK market and the SP 500 of the US market. Mathematically, instead of using the arithmetic return, the paper employs the daily log-returns. The full period, which the calculations are based on, stretches from 05/06/2002 to 22/06/2009 for each single index. More precisely, to implement the empirical test, the period will be divided separately into two sub-periods: the first series of empirical data, which are used to make the parameter estimation, spans from 05/06/2002 to 31/07/2007. The rest of the data, which is between 01/08/2007 and 22/06/2009, is used for predicting VaR figures and backtesting. Do note here is that the latter stage is exactly the current global financial crisis period which began from the August of 2007, dramatically peaked in the ending months of 2008 and signally reduced significantly in the middle of 2009. Consequently, the study will purposely examine the accuracy of the VaR models within the volatile time. 3.1.1. FTSE 100 index The FTSE 100 Index is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange, began on 3rd January 1984. FTSE 100 companies represent about 81% of the market capitalisation of the whole London Stock Exchange and become the most widely used UK stock market indicator. In the dissertation, the full data used for the empirical analysis consists of 1782 observations (1782 working days) of the UK FTSE 100 index covering the period from 05/06/2002 to 22/06/2009. 3.1.2. SP 500 index The SP 500 is a value weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks listed on the SP 500 are those of large publicly held companies that trade on either of the two largest American stock market companies, the NYSE Euronext and NASDAQ OMX. After the Dow Jones Industrial Average, the SP 500 is the most widely followed index of large-cap American stocks. The SP 500 refers not only to the index, but also to the 500 companies that have their common stock included in the index and consequently considered as a bellwether for the US economy. Similar to the FTSE 100, the data for the SP 500 is also observed during the same period with 1775 observations (1775 working days). 3.2. Data Analysis For the VaR models, one of the most important aspects is assumptions relating to measuring VaR. This section first discusses several VaR assumptions and then examines the collected empirical data characteristics. 3.2.1. Assumptions 3.2.1.1. Normality assumption Normal distribution As mentioned in the chapter 2, most VaR models assume that return distribution is normally distributed with mean of 0 and standard deviation of 1 (see figure 3.1). Nonetheless, the chapter 2 also shows that the actual return in most of previous empirical investigations does not completely follow the standard distribution. Figure 3.1: Standard Normal Distribution Skewness The skewness is a measure of asymmetry of the distribution of the financial time series around its mean. Normally data is assumed to be symmetrically distributed with skewness of 0. A dataset with either a positive or negative skew deviates from the normal distribution assumptions (see figure 3.2). This can cause parametric approaches, such as the Riskmetrics and the symmetric normal-GARCH(1,1) model under the assumption of standard distributed returns, to be less effective if asset returns are heavily skewed. The result can be an overestimation or underestimation of the VaR value depending on the skew of the underlying asset returns. Figure 3.2: Plot of a positive or negative skew Kurtosis The kurtosis measures the peakedness or flatness of the distribution of a data sample and describes how concentrated the returns are around their mean. A high value of kurtosis means that more of data’s variance comes from extreme deviations. In other words, a high kurtosis means that the assets returns consist of more extreme values than modeled by the normal distribution. This positive excess kurtosis is, according to Lee and Lee (2000) called leptokurtic and a negative excess kurtosis is called platykurtic. The data which is normally distributed has kurtosis of 3. Figure 3.3: General forms of Kurtosis Jarque-Bera Statistic In statistics, Jarque-Bera (JB) is a test statistic for testing whether the series is normally distributed. In other words, the Jarque-Bera test is a goodness-of-fit measure of departure from normality, based on the sample kurtosis and skewness. The test statistic JB is defined as: where n is the number of observations, S is the sample skewness, K is the sample kurtosis. For large sample sizes, the test statistic has a Chi-square distribution with two degrees of freedom. Augmented Dickey–Fuller Statistic Augmented Dickey–Fuller test (ADF) is a test for a unit root in a time series sample. It is an augmented version of the Dickey–Fuller test for a larger and more complicated set of time series models. The ADF statistic used in the test is a negative number. The more negative it is, the stronger the rejection of the hypothesis that there is a unit root at some level of confidence. ADF critical values: (1%) –3.4334, (5%) –2.8627, (10%) –2.5674. 3.2.1.2. Homoscedasticity assumption Homoscedasticity refers to the assumption that the dependent variable exhibits similar amounts of variance across the range of values for an independent variable. Figure 3.4: Plot of Homoscedasticity Unfortunately, the chapter 2, based on the previous empirical studies confirmed that the financial markets usually experience unexpected events, uncertainties in prices (and returns) and exhibit non-constant variance (Heteroskedasticity). Indeed, the volatility of financial asset returns changes over time, with periods when volatility is exceptionally high interspersed with periods when volatility is unusually low, namely volatility clustering. It is one of the widely stylised facts (stylised statistical properties of asset returns) which are common to a common set of financial assets. The volatility clustering reflects that high-volatility events tend to cluster in time. 3.2.1.3. Stationarity assumption According to Cont (2001), the most essential prerequisite of any statistical analysis of market data is the existence of some statistical properties of the data under study which remain constant over time, if not it is meaningless to try to recognize them. One of the hypotheses relating to the invariance of statistical properties of the return process in time is the stationarity. This hypothesis assumes that for any set of time instants ,†¦, and any time interval the joint distribution of the returns ,†¦, is the same as the joint distribution of returns ,†¦,. The Augmented Dickey-Fuller test, in turn, will also be used to test whether time-series models are accurately to examine the stationary of statistical properties of the return. 3.2.1.4. Serial independence assumption There are a large number of tests of randomness of the sample data. Autocorrelation plots are one common method test for randomness. Autocorrelation is the correlation between the returns at the different points in time. It is the same as calculating the correlation between two different time series, except that the same time series is used twice once in its original form and once lagged one or more time periods. The results can range from  +1 to -1. An autocorrelation of  +1 represents perfect positive correlation (i.e. an increase seen in one time series will lead to a proportionate increase in the other time series), while a value of -1 represents perfect negative correlation (i.e. an increase seen in one time series results in a proportionate decrease in the other time series). In terms of econometrics, the autocorrelation plot will be examined based on the Ljung-Box Q statistic test. However, instead of testing randomness at each distinct lag, it tests the overall randomness based on a number of lags. The Ljung-Box test can be defined as: where n is the sample size,is the sample autocorrelation at lag j, and h is the number of lags being tested. The hypothesis of randomness is rejected if whereis the percent point function of the Chi-square distribution and the ÃŽ ± is the quantile of the Chi-square distribution with h degrees of freedom. 3.2.2. Data Characteristics Table 3.1 gives the descriptive statistics for the FTSE 100 and the SP 500 daily stock market prices and returns. Daily returns are computed as logarithmic price relatives: Rt = ln(Pt/pt-1), where Pt is the closing daily price at time t. Figures 3.5a and 3.5b, 3.6a and 3.6b present the plots of returns and price index over time. Besides, Figures 3.7a and 3.7b, 3.8a and 3.8b illustrate the combination between the frequency distribution of the FTSE 100 and the SP 500 daily return data and a normal distribution curve imposed, spanning from 05/06/2002 through 22/06/2009. Table 3.1: Diagnostics table of statistical characteristics on the returns of the FTSE 100 Index and SP 500 index between 05/06/2002 and 22/6/2009. DIAGNOSTICS SP 500 FTSE 100 Number of observations 1774 1781 Largest return 10.96% 9.38% Smallest return -9.47% -9.26% Mean return -0.0001 -0.0001 Variance 0.0002 0.0002 Standard Deviation 0.0144 0.0141 Skewness -0.1267 -0.0978 Excess Kurtosis 9.2431 7.0322 Jarque-Bera 694.485*** 2298.153*** Augmented Dickey-Fuller (ADF) 2 -37.6418 -45.5849 Q(12) 20.0983* Autocorre: 0.04 93.3161*** Autocorre: 0.03 Q2 (12) 1348.2*** Autocorre: 0.28 1536.6*** Autocorre: 0.25 The ratio of SD/mean 144 141 Note: 1. *, **, and *** denote significance at the 10%, 5%, and 1% levels, respectively. 2. 95% critical value for the augmented Dickey-Fuller statistic = -3.4158 Figure 3.5a: The FTSE 100 daily returns from 05/06/2002 to 22/06/2009 Figure 3.5b: The SP 500 daily returns from 05/06/2002 to 22/06/2009 Figure 3.6a: The FTSE 100 daily closing prices from 05/06/2002 to 22/06/2009 Figure 3.6b: The SP 500 daily closing prices from 05/06/2002 to 22/06/2009 Figure 3.7a: Histogram showing the FTSE 100 daily returns combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 Figure 3.7b: Histogram showing the SP 500 daily returns combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 Figure 3.8a: Diagram showing the FTSE 100’ frequency distribution combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 Figure 3.8b: Diagram showing the SP 500’ frequency distribution combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 The Table 3.1 shows that the FTSE 100 and the SP 500 average daily return are approximately 0 percent, or at least very small compared to the sample standard deviation (the standard deviation is 141 and 144 times more than the size of the average return for the FTSE 100 and SP 500, respectively). This is why the mean is often set at zero when modelling daily portfolio returns, which reduces the uncertainty and imprecision of the estimates. In addition, large standard deviation compared to the mean supports the evidence that daily changes are dominated by randomness and small mean can be disregarded in risk measure estimates. Moreover, the paper also employes five statistics which often used in analysing data, including Skewness, Kurtosis, Jarque-Bera, Augmented Dickey-Fuller (ADF) and Ljung-Box test to examining the empirical full period, crossing from 05/06/2002 through 22/06/2009. Figure 3.7a and 3.7b demonstrate the histogram of the FTSE 100 and the SP 500 daily return data with the normal distribution imposed. The distribution of both the indexes has longer, fatter tails and higher probabilities for extreme events than for the normal distribution, in particular on the negative side (negative skewness implying that the distribution has a long left tail). Fatter negative tails mean a higher probability of large losses than the normal distribution would suggest. It is more peaked around its mean than the normal distribution, Indeed, the value for kurtosis is very high (10 and 12 for the FTSE 100 and the SP 500, respectively compared to 3 of the normal distribution) (also see Figures 3.8a and 3.8b for more details). In other words, the most prominent deviation from the normal distributional assumption is the kurtosis, which can be seen from the middle bars of the histogram rising above the normal distribution. Moreover, it is obvious that outliers still exist, which indicates that excess kurtosis is still present. The Jarque-Bera test rejects normality of returns at the 1% level of significance for both the indexes. So, the samples have all financial characteristics: volatility clustering and leptokurtosis. Besides that, the daily returns for both the indexes (presented in Figure 3.5a and 3.5b) reveal that volatility occurs in bursts; particularly the returns were very volatile at the beginning of examined period from June 2002 to the middle of June 2003. After remaining stable for about 4 years, the returns of the two well-known stock indexes in the world were highly volatile from July 2007 (when the credit crunch was about to begin) and even dramatically peaked since July 2008 to the end of June 2009. Generally, there are two recognised characteristics of the collected daily data. First, extreme outcomes occur more often and are larger than that predicted by the normal distribution (fat tails). Second, the size of market movements is not constant over time (conditional volatility). In terms of stationary, the Augmented Dickey-Fuller is adopted for the unit root test. The null hypothesis of this test is that there is a unit root (the time series is non-stationary). The alternative hypothesis is that the time series is stationary. If the null hypothesis is rejected, it means that the series is a stationary time series. In this thesis, the paper employs the ADF unit root test including an intercept and a trend term on return. The results from the ADF tests indicate that the test statistis for the FTSE 100 and the SP 500 is -45.5849 and -37.6418, respectively. Such values are significantly less than the 95% critical value for the augmented Dickey-Fuller statistic (-3.4158). Therefore, we can reject the unit root null hypothesis and sum up that the daily return series is robustly stationary. Finally, Table 3.1 shows the Ljung-Box test statistics for serial correlation of the return and squared return series for k = 12 lags, denoted by Q(k) and Q2(k), respectively. The Q(12) statistic is statistically significant implying the present of serial correlation in the FTSE 100 and the SP 500 daily return series (first moment dependencies). In other words, the return series exhibit linear dependence. Figure 3.9a: Autocorrelations of the FTSE 100 daily returns for Lags 1 through 100, covering 05/06/2002 to 22/06/2009. Figure 3.9b: Autocorrelations of the SP 500 daily returns for Lags 1 through 100, covering 05/06/2002 to 22/06/2009. Figures 3.9a and 3.9b and the autocorrelation coefficient (presented in Table 3.1) tell that the FTSE 100 and the SP 500 daily return did not display any systematic pattern and the returns have very little autocorrelations. According to Christoffersen (2003), in this situation we can write: Corr(Rt+1,Rt+1-ÃŽ ») ≈ 0, for ÃŽ » = 1,2,3†¦, 100 Therefore, returns are almost impossible to predict from their own past. One note is that since the mean of daily returns for both the indexes (-0.0001) is not significantly different from zero, and therefore, the variances of the return series are measured by squared returns. The Ljung-Box Q2 test statistic for the squared returns is much higher, indicating the presence of serial correlation in the squared return series. Figures 3.10a and 3.10b) and the autocorrelation coefficient (presented in Table 3.1) also confirm the autocorrelations in squared returns (variances) for the FTSE 100 and the SP 500 data, and more importantly, variance displays positive correlation with its own past, especially with short lags. Corr(R2t+1,R2t+1-ÃŽ ») > 0, for ÃŽ » = 1,2,3†¦, 100 Figure 3.10a: Autocorrelations of the FTSE 100 squared daily returns Figure 3.10b: Autocorrelations of the SP 500 squared daily returns 3.3. Calculation of Value At Risk The section puts much emphasis on how to calculate VaR figures for both single return indexes from proposed models, including the Historical Simulation, the Riskmetrics, the Normal-GARCH(1,1) (or N-GARCH(1,1)) and the Student-t GARCH(1,1) (or t-GARCH(1,1)) model. Except the historical simulation model which does not make any assumptions about the shape of the distribution of the assets returns, the other ones commonly have been studied under the assumption that the returns are normally distributed. Based on the previous section relating to the examining data, this assumption is rejected because observed extreme outcomes of the both single index returns occur more often and are larger than predicted by the normal distribution. Also, the volatility tends to change through time and periods of high and low volatility tend to cluster together. Consequently, the four proposed VaR models under the normal distribution either have particular limitations or unrealistic. Specifically, the historical simulation significantly assumes that the historically simulated returns are independently and identically distributed through time. Unfortunately, this assumption is impractical due to the volatility clustering of the empirical data. Similarly, although the Riskmetrics tries to avoid relying on sample observations and make use of additional information contained in the assumed distribution function, its normally distributional assumption is also unrealistic from the results of examining the collected data. The normal-GARCH(1,1) model and the student-t GARCH(1,1) model, on the other hand, can capture the fat tails and volatility clustering which occur in the observed financial time series data, but their returns standard distributional assumption is also impossible comparing to the empirical data. Despite all these, the thesis still uses the four models under the standard distributional assumption of returns to comparing and evaluating their estimated results with the predicted results based on the student distributional assumption of returns. Besides, since the empirical data experiences fatter tails more than that of the normal distribution, the essay intentionally employs the Cornish-Fisher Expansion technique to correct the z-value from the normal distribution to account for fatter tails, and then compare these results with the two results above. Therefore, in this chapter, we purposely calculate VaR by separating these three procedures into three different sections and final results will be discussed in length in chapter 4. 3.3.1. Components of VaR measures Throughout the analysis, a holding period of one-trading day will be used. For the significance level, various values for the left tail probability level will be considered, ranging from the very conservative level of 1 percent to the mid of 2.5 percent and to the less cautious 5 percent. The various VaR models will be estimated using the historical data of the two single return index samples, stretches from 05/06/2002 through 31/07/2007 (consisting of 1305 and 1298 prices observations for the FTSE 100 and the SP 500, respectively) for making the parameter estimation, and from 01/08/2007 to 22/06/2009 for predicting VaRs and backtesting. One interesting point here is that since there are few previous empirical studies examining the performance of VaR models during periods of financial crisis, the paper deliberately backtest the validity of VaR models within the current global financial crisis from the beginning in August 2007. 3.3.2. Calculation of VaR 3.3.2.1. Non-parametric approach Historical Simulation As mentioned above, the historical simulation model pretends that the change in market factors from today to tomorrow will be the same as it was some time ago, and therefore, it is computed based on the historical returns distribution. Consequently, we separate this non-parametric approach into a section. The chapter 2 has proved that calculating VaR using the historical simulation model is not mathematically complex since the measure only requires a rational period of historical data. Thus, the first task is to obtain an adequate historical time series for simulating. There are many previous studies presenting that predicted results of the model are relatively reliable once the window length of data used for simulating daily VaRs is not shorter than 1000 observed days. In this sense, the study will be based on a sliding window of the previous 1305 and 1298 prices observations (1304 and 1297 returns observations) for the FTSE 100 and the SP 500, respectively, spanning from 05/06/2002 through 31/07/2007. We have selected this rather than larger windows is since adding more historical data means adding older historical data which could be irrelevant to the future development of the returns indexes. After sorting in ascending order the past returns attributed to equally spaced classes, the predicted VaRs are determined as that log-return lies on the target percentile, say, in the thesis is on three widely percentiles of 1%, 2.5% and 5% lower tail of the return distribution. The result is a frequency distribution of returns, which is displayed as a histogram, and shown in Figure 3.11a and 3.11b below. The vertical axis shows the number of days on which returns are attributed to the various classes. The red vertical lines in the histogram separate the lowest 1%, 2.5% and 5% returns from the remaining (99%, 97.5% and 95%) returns. For FTSE 100, since the histogram is drawn from 1304 daily returns, the 99%, 97.5% and 95% daily VaRs are approximately the 13th, 33rd and 65th lowest return in this dataset which are -3.2%, -2.28% and -1.67%, respectively and are roughly marked in the histogram by the red vertical lines. The interpretation is that the VaR gives a number such that there is, say, a 1% chance of losing more than 3.2% of the single asset value tomorrow (on 01st August 2007). The SP 500 VaR figures, on the other hand, are little bit smaller than that of the UK stock index with -2.74%, -2.03% and -1.53% corresponding to 99%, 97.5% and 95% confidence levels, respectively. Figure 3.11a: Histogram of daily returns of FTSE 100 between 05/06/2002 and 31/07/2007 Figure 3.11b: Histogram of daily returns of SP 500 between 05/06/2002 and 31/07/2007 Following predicted VaRs on the first day of the predicted period, we continuously calculate VaRs for the estimated period, covering from 01/08/2007 to 22/06/2009. The question is whether the proposed non-parametric model is accurately performed in the turbulent period will be discussed in length in the chapter 4. 3.3.2.2. Parametric approaches under the normal distributional assumption of returns This section presents how to calculate the daily VaRs using the parametric approaches, including the RiskMetrics, the normal-GARCH(1,1) and the student-t GARCH(1,1) under the standard distributional assumption of returns. The results and the validity of each model during the turbulent period will deeply be considered in the chapter 4. 3.3.2.2.1. The RiskMetrics Comparing to the historical simulation model, the RiskMetrics as discussed in the chapter 2 does not solely rely on sample observations; instead, they make use of additional information contained in the normal distribution function. All that needs is the current estimate of volatility. In this sense, we first calculate daily RiskMetrics variance for both the indexes, crossing the parameter estimated period from 05/06/2002 to 31/07/2007 based on the well-known RiskMetrics variance formula (2.9). Specifically, we had the fixed decay factor ÃŽ »=0.94 (the RiskMetrics system suggested using ÃŽ »=0.94 to forecast one-day volatility). Besides, the other parameters are easily calculated, for instance, and are the squared log-return and variance of the previous day, correspondingly. After calculating the daily variance, we continuously measure VaRs for the forecasting period from 01/08/2007 to 22/06/2009 under different confidence levels of 99%, 97.5% and 95% based on the normal VaR formula (2.6), where the critical z-value of the normal distribution at each significance level is simply computed using the Excel function NORMSINV. 3.3.2.2.2. The Normal-GARCH(1,1) model For GARCH models, the chapter 2 confirms that the most important point is to estimate the model parameters ,,. These parameters has to be calculated for numerically, using the method of maximum likelihood estimation (MLE). In fact, in order to do the MLE function, many previous studies efficiently use professional econometric softwares rather than handling the mathematical calculations. In the light of evidence, the normal-GARCH(1,1) is executed by using a well-known econometric tool, STATA, to estimate the model parameters (see Table 3.2 below). Table 3.2. The parameters statistics of the Normal-GARCH(1,1) model for the FTSE 100 and the SP 500 Normal-GARCH(1,1)* Parameters FTSE 100 SP 500 0.0955952 0.0555244 0.8907231 0.9289999 0.0000012 0.0000011 + 0.9863183 0.9845243 Number of Observations 1304 1297 Log likelihood 4401.63 4386.964 * Note: In this section, we report the results from the Normal-GARCH(1,1) model using the method of maximum likelihood, under the assumption that the errors conditionally follow the normal distribution with significance level of 5%. According to Table 3.2, the coefficients of the lagged squared returns () for both the indexes are positive, concluding that strong ARCH effects are apparent for both the financial markets. Also, the coefficients of lagged conditional variance () are significantly positive and less than one, indicating that the impact of ‘old’ news on volatility is significant. The magnitude of the coefficient, is especially high (around 0.89 – 0.93), indicating a long memory in the variance. The estimate of was 1.2E-06 for the FTSE 100 and 1.1E-06 for the SP 500 implying a long run standard deviation of daily market return of about 0.94% and 0.84%, respectively. The log-likehood for this model for both the indexes was 4401.63 and 4386.964 for the FTSE 100 and the SP 500, correspondingly. The Log likehood ratios rejected the hypothesis of normality very strongly. After calculating the model parameters, we begin measuring conditional variance (volatility) for the parameter estimated period, covering from 05/06/2002 to 31/07/2007 based on the conditional variance formula (2.11), where and are the squared log-return and conditional variance of the previous day, respectively. We then measure predicted daily VaRs for the forecasting period from 01/08/2007 to 22/06/2009 under confidence levels of 99%, 97.5% and 95% using the normal VaR formula (2.6). Again, the critical z-value of the normal distribution under significance levels of 1%, 2.5% and 5% is purely computed using the Excel function NORMSINV. 3.3.2.2.3. The Student-t GARCH(1,1) model Different from the Normal-GARCH(1,1) approach, the model assumes that the volatility (or the errors of the returns) follows the Student-t distribution. In fact, many previous studies suggested that using the symmetric GARCH(1,1) model with the volatility following the Student-t distribution is more accurate than with that of the Normal distribution when examining financial time series. Accordingly, the paper additionally employs the Student-t GARCH(1,1) approach to measure VaRs. In this section, we use this model under the normal distributional assumption of returns. First is to estimate the model parameters using the method of maximum likelihood estimation and obtained by the STATA (see Table 3.3). Table 3.3. The parameters statistics of the Student-t GARCH(1,1) model for the FTSE 100 and the SP 500 Student-t GARCH(1,1)* Parameters FTSE 100 SP 500 0.0926120 0.0569293 0.8946485 0.9354794 0.0000011 0.0000006 + 0.9872605 0.9924087 Number of Observations 1304 1297 Log likelihood 4406.50 4399.24 * Note: In this section, we report the results from the Student-t GARCH(1,1) model using the method of maximum likelihood, under the assumption that the errors conditionally follow the student distribution with significance level of 5%. The Table 3.3 also identifies the same characteristics of the student-t GARCH(1,1) model parameters comparing to the normal-GARCH(1,1) approach. Specifically, the results of , expose that there were evidently strong ARCH effects occurred on the UK and US financial markets during the parameter estimated period, crossing from 05/06/2002 to 31/07/2007. Moreover, as Floros (2008) mentioned, there was also the considerable impact of ‘old’ news on volatility as well as a long memory in the variance. We at that time follow the similar steps as calculating VaRs using the normal-GARCH(1,1) model. 3.3.2.3. Parametric approaches under the normal distributional assumption of returns modified by the Cornish-Fisher Expansion technique The section 3.3.2.2 measured the VaRs using the parametric approaches under the assumption that the returns are normally distributed. Regardless of their results and performance, it is clearly that this assumption is impractical since the fact that the collected empirical data experiences fatter tails more than that of the normal distribution. Consequently, in this section the study intentionally employs the Cornish-Fisher Expansion (CFE) technique to correct the z-value from the assumption of the normal distribution to significantly account for fatter tails. Again, the question of whether the proposed models achieved powerfully within the recent damage time will be assessed in length in the chapter 4. 3.3.2.3.1. The CFE-modified RiskMetrics Similar VaR Models in Predicting Equity Market Risk VaR Models in Predicting Equity Market Risk Chapter 3 Research Design This chapter represents how to apply proposed VaR models in predicting equity market risk. Basically, the thesis first outlines the collected empirical data. We next focus on verifying assumptions usually engaged in the VaR models and then identifying whether the data characteristics are in line with these assumptions through examining the observed data. Various VaR models are subsequently discussed, beginning with the non-parametric approach (the historical simulation model) and followed by the parametric approaches under different distributional assumptions of returns and intentionally with the combination of the Cornish-Fisher Expansion technique. Finally, backtesting techniques are employed to value the performance of the suggested VaR models. 3.1. Data The data used in the study are financial time series that reflect the daily historical price changes for two single equity index assets, including the FTSE 100 index of the UK market and the SP 500 of the US market. Mathematically, instead of using the arithmetic return, the paper employs the daily log-returns. The full period, which the calculations are based on, stretches from 05/06/2002 to 22/06/2009 for each single index. More precisely, to implement the empirical test, the period will be divided separately into two sub-periods: the first series of empirical data, which are used to make the parameter estimation, spans from 05/06/2002 to 31/07/2007. The rest of the data, which is between 01/08/2007 and 22/06/2009, is used for predicting VaR figures and backtesting. Do note here is that the latter stage is exactly the current global financial crisis period which began from the August of 2007, dramatically peaked in the ending months of 2008 and signally reduced significantly in the middle of 2009. Consequently, the study will purposely examine the accuracy of the VaR models within the volatile time. 3.1.1. FTSE 100 index The FTSE 100 Index is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange, began on 3rd January 1984. FTSE 100 companies represent about 81% of the market capitalisation of the whole London Stock Exchange and become the most widely used UK stock market indicator. In the dissertation, the full data used for the empirical analysis consists of 1782 observations (1782 working days) of the UK FTSE 100 index covering the period from 05/06/2002 to 22/06/2009. 3.1.2. SP 500 index The SP 500 is a value weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks listed on the SP 500 are those of large publicly held companies that trade on either of the two largest American stock market companies, the NYSE Euronext and NASDAQ OMX. After the Dow Jones Industrial Average, the SP 500 is the most widely followed index of large-cap American stocks. The SP 500 refers not only to the index, but also to the 500 companies that have their common stock included in the index and consequently considered as a bellwether for the US economy. Similar to the FTSE 100, the data for the SP 500 is also observed during the same period with 1775 observations (1775 working days). 3.2. Data Analysis For the VaR models, one of the most important aspects is assumptions relating to measuring VaR. This section first discusses several VaR assumptions and then examines the collected empirical data characteristics. 3.2.1. Assumptions 3.2.1.1. Normality assumption Normal distribution As mentioned in the chapter 2, most VaR models assume that return distribution is normally distributed with mean of 0 and standard deviation of 1 (see figure 3.1). Nonetheless, the chapter 2 also shows that the actual return in most of previous empirical investigations does not completely follow the standard distribution. Figure 3.1: Standard Normal Distribution Skewness The skewness is a measure of asymmetry of the distribution of the financial time series around its mean. Normally data is assumed to be symmetrically distributed with skewness of 0. A dataset with either a positive or negative skew deviates from the normal distribution assumptions (see figure 3.2). This can cause parametric approaches, such as the Riskmetrics and the symmetric normal-GARCH(1,1) model under the assumption of standard distributed returns, to be less effective if asset returns are heavily skewed. The result can be an overestimation or underestimation of the VaR value depending on the skew of the underlying asset returns. Figure 3.2: Plot of a positive or negative skew Kurtosis The kurtosis measures the peakedness or flatness of the distribution of a data sample and describes how concentrated the returns are around their mean. A high value of kurtosis means that more of data’s variance comes from extreme deviations. In other words, a high kurtosis means that the assets returns consist of more extreme values than modeled by the normal distribution. This positive excess kurtosis is, according to Lee and Lee (2000) called leptokurtic and a negative excess kurtosis is called platykurtic. The data which is normally distributed has kurtosis of 3. Figure 3.3: General forms of Kurtosis Jarque-Bera Statistic In statistics, Jarque-Bera (JB) is a test statistic for testing whether the series is normally distributed. In other words, the Jarque-Bera test is a goodness-of-fit measure of departure from normality, based on the sample kurtosis and skewness. The test statistic JB is defined as: where n is the number of observations, S is the sample skewness, K is the sample kurtosis. For large sample sizes, the test statistic has a Chi-square distribution with two degrees of freedom. Augmented Dickey–Fuller Statistic Augmented Dickey–Fuller test (ADF) is a test for a unit root in a time series sample. It is an augmented version of the Dickey–Fuller test for a larger and more complicated set of time series models. The ADF statistic used in the test is a negative number. The more negative it is, the stronger the rejection of the hypothesis that there is a unit root at some level of confidence. ADF critical values: (1%) –3.4334, (5%) –2.8627, (10%) –2.5674. 3.2.1.2. Homoscedasticity assumption Homoscedasticity refers to the assumption that the dependent variable exhibits similar amounts of variance across the range of values for an independent variable. Figure 3.4: Plot of Homoscedasticity Unfortunately, the chapter 2, based on the previous empirical studies confirmed that the financial markets usually experience unexpected events, uncertainties in prices (and returns) and exhibit non-constant variance (Heteroskedasticity). Indeed, the volatility of financial asset returns changes over time, with periods when volatility is exceptionally high interspersed with periods when volatility is unusually low, namely volatility clustering. It is one of the widely stylised facts (stylised statistical properties of asset returns) which are common to a common set of financial assets. The volatility clustering reflects that high-volatility events tend to cluster in time. 3.2.1.3. Stationarity assumption According to Cont (2001), the most essential prerequisite of any statistical analysis of market data is the existence of some statistical properties of the data under study which remain constant over time, if not it is meaningless to try to recognize them. One of the hypotheses relating to the invariance of statistical properties of the return process in time is the stationarity. This hypothesis assumes that for any set of time instants ,†¦, and any time interval the joint distribution of the returns ,†¦, is the same as the joint distribution of returns ,†¦,. The Augmented Dickey-Fuller test, in turn, will also be used to test whether time-series models are accurately to examine the stationary of statistical properties of the return. 3.2.1.4. Serial independence assumption There are a large number of tests of randomness of the sample data. Autocorrelation plots are one common method test for randomness. Autocorrelation is the correlation between the returns at the different points in time. It is the same as calculating the correlation between two different time series, except that the same time series is used twice once in its original form and once lagged one or more time periods. The results can range from  +1 to -1. An autocorrelation of  +1 represents perfect positive correlation (i.e. an increase seen in one time series will lead to a proportionate increase in the other time series), while a value of -1 represents perfect negative correlation (i.e. an increase seen in one time series results in a proportionate decrease in the other time series). In terms of econometrics, the autocorrelation plot will be examined based on the Ljung-Box Q statistic test. However, instead of testing randomness at each distinct lag, it tests the overall randomness based on a number of lags. The Ljung-Box test can be defined as: where n is the sample size,is the sample autocorrelation at lag j, and h is the number of lags being tested. The hypothesis of randomness is rejected if whereis the percent point function of the Chi-square distribution and the ÃŽ ± is the quantile of the Chi-square distribution with h degrees of freedom. 3.2.2. Data Characteristics Table 3.1 gives the descriptive statistics for the FTSE 100 and the SP 500 daily stock market prices and returns. Daily returns are computed as logarithmic price relatives: Rt = ln(Pt/pt-1), where Pt is the closing daily price at time t. Figures 3.5a and 3.5b, 3.6a and 3.6b present the plots of returns and price index over time. Besides, Figures 3.7a and 3.7b, 3.8a and 3.8b illustrate the combination between the frequency distribution of the FTSE 100 and the SP 500 daily return data and a normal distribution curve imposed, spanning from 05/06/2002 through 22/06/2009. Table 3.1: Diagnostics table of statistical characteristics on the returns of the FTSE 100 Index and SP 500 index between 05/06/2002 and 22/6/2009. DIAGNOSTICS SP 500 FTSE 100 Number of observations 1774 1781 Largest return 10.96% 9.38% Smallest return -9.47% -9.26% Mean return -0.0001 -0.0001 Variance 0.0002 0.0002 Standard Deviation 0.0144 0.0141 Skewness -0.1267 -0.0978 Excess Kurtosis 9.2431 7.0322 Jarque-Bera 694.485*** 2298.153*** Augmented Dickey-Fuller (ADF) 2 -37.6418 -45.5849 Q(12) 20.0983* Autocorre: 0.04 93.3161*** Autocorre: 0.03 Q2 (12) 1348.2*** Autocorre: 0.28 1536.6*** Autocorre: 0.25 The ratio of SD/mean 144 141 Note: 1. *, **, and *** denote significance at the 10%, 5%, and 1% levels, respectively. 2. 95% critical value for the augmented Dickey-Fuller statistic = -3.4158 Figure 3.5a: The FTSE 100 daily returns from 05/06/2002 to 22/06/2009 Figure 3.5b: The SP 500 daily returns from 05/06/2002 to 22/06/2009 Figure 3.6a: The FTSE 100 daily closing prices from 05/06/2002 to 22/06/2009 Figure 3.6b: The SP 500 daily closing prices from 05/06/2002 to 22/06/2009 Figure 3.7a: Histogram showing the FTSE 100 daily returns combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 Figure 3.7b: Histogram showing the SP 500 daily returns combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 Figure 3.8a: Diagram showing the FTSE 100’ frequency distribution combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 Figure 3.8b: Diagram showing the SP 500’ frequency distribution combined with a normal distribution curve, spanning from 05/06/2002 through 22/06/2009 The Table 3.1 shows that the FTSE 100 and the SP 500 average daily return are approximately 0 percent, or at least very small compared to the sample standard deviation (the standard deviation is 141 and 144 times more than the size of the average return for the FTSE 100 and SP 500, respectively). This is why the mean is often set at zero when modelling daily portfolio returns, which reduces the uncertainty and imprecision of the estimates. In addition, large standard deviation compared to the mean supports the evidence that daily changes are dominated by randomness and small mean can be disregarded in risk measure estimates. Moreover, the paper also employes five statistics which often used in analysing data, including Skewness, Kurtosis, Jarque-Bera, Augmented Dickey-Fuller (ADF) and Ljung-Box test to examining the empirical full period, crossing from 05/06/2002 through 22/06/2009. Figure 3.7a and 3.7b demonstrate the histogram of the FTSE 100 and the SP 500 daily return data with the normal distribution imposed. The distribution of both the indexes has longer, fatter tails and higher probabilities for extreme events than for the normal distribution, in particular on the negative side (negative skewness implying that the distribution has a long left tail). Fatter negative tails mean a higher probability of large losses than the normal distribution would suggest. It is more peaked around its mean than the normal distribution, Indeed, the value for kurtosis is very high (10 and 12 for the FTSE 100 and the SP 500, respectively compared to 3 of the normal distribution) (also see Figures 3.8a and 3.8b for more details). In other words, the most prominent deviation from the normal distributional assumption is the kurtosis, which can be seen from the middle bars of the histogram rising above the normal distribution. Moreover, it is obvious that outliers still exist, which indicates that excess kurtosis is still present. The Jarque-Bera test rejects normality of returns at the 1% level of significance for both the indexes. So, the samples have all financial characteristics: volatility clustering and leptokurtosis. Besides that, the daily returns for both the indexes (presented in Figure 3.5a and 3.5b) reveal that volatility occurs in bursts; particularly the returns were very volatile at the beginning of examined period from June 2002 to the middle of June 2003. After remaining stable for about 4 years, the returns of the two well-known stock indexes in the world were highly volatile from July 2007 (when the credit crunch was about to begin) and even dramatically peaked since July 2008 to the end of June 2009. Generally, there are two recognised characteristics of the collected daily data. First, extreme outcomes occur more often and are larger than that predicted by the normal distribution (fat tails). Second, the size of market movements is not constant over time (conditional volatility). In terms of stationary, the Augmented Dickey-Fuller is adopted for the unit root test. The null hypothesis of this test is that there is a unit root (the time series is non-stationary). The alternative hypothesis is that the time series is stationary. If the null hypothesis is rejected, it means that the series is a stationary time series. In this thesis, the paper employs the ADF unit root test including an intercept and a trend term on return. The results from the ADF tests indicate that the test statistis for the FTSE 100 and the SP 500 is -45.5849 and -37.6418, respectively. Such values are significantly less than the 95% critical value for the augmented Dickey-Fuller statistic (-3.4158). Therefore, we can reject the unit root null hypothesis and sum up that the daily return series is robustly stationary. Finally, Table 3.1 shows the Ljung-Box test statistics for serial correlation of the return and squared return series for k = 12 lags, denoted by Q(k) and Q2(k), respectively. The Q(12) statistic is statistically significant implying the present of serial correlation in the FTSE 100 and the SP 500 daily return series (first moment dependencies). In other words, the return series exhibit linear dependence. Figure 3.9a: Autocorrelations of the FTSE 100 daily returns for Lags 1 through 100, covering 05/06/2002 to 22/06/2009. Figure 3.9b: Autocorrelations of the SP 500 daily returns for Lags 1 through 100, covering 05/06/2002 to 22/06/2009. Figures 3.9a and 3.9b and the autocorrelation coefficient (presented in Table 3.1) tell that the FTSE 100 and the SP 500 daily return did not display any systematic pattern and the returns have very little autocorrelations. According to Christoffersen (2003), in this situation we can write: Corr(Rt+1,Rt+1-ÃŽ ») ≈ 0, for ÃŽ » = 1,2,3†¦, 100 Therefore, returns are almost impossible to predict from their own past. One note is that since the mean of daily returns for both the indexes (-0.0001) is not significantly different from zero, and therefore, the variances of the return series are measured by squared returns. The Ljung-Box Q2 test statistic for the squared returns is much higher, indicating the presence of serial correlation in the squared return series. Figures 3.10a and 3.10b) and the autocorrelation coefficient (presented in Table 3.1) also confirm the autocorrelations in squared returns (variances) for the FTSE 100 and the SP 500 data, and more importantly, variance displays positive correlation with its own past, especially with short lags. Corr(R2t+1,R2t+1-ÃŽ ») > 0, for ÃŽ » = 1,2,3†¦, 100 Figure 3.10a: Autocorrelations of the FTSE 100 squared daily returns Figure 3.10b: Autocorrelations of the SP 500 squared daily returns 3.3. Calculation of Value At Risk The section puts much emphasis on how to calculate VaR figures for both single return indexes from proposed models, including the Historical Simulation, the Riskmetrics, the Normal-GARCH(1,1) (or N-GARCH(1,1)) and the Student-t GARCH(1,1) (or t-GARCH(1,1)) model. Except the historical simulation model which does not make any assumptions about the shape of the distribution of the assets returns, the other ones commonly have been studied under the assumption that the returns are normally distributed. Based on the previous section relating to the examining data, this assumption is rejected because observed extreme outcomes of the both single index returns occur more often and are larger than predicted by the normal distribution. Also, the volatility tends to change through time and periods of high and low volatility tend to cluster together. Consequently, the four proposed VaR models under the normal distribution either have particular limitations or unrealistic. Specifically, the historical simulation significantly assumes that the historically simulated returns are independently and identically distributed through time. Unfortunately, this assumption is impractical due to the volatility clustering of the empirical data. Similarly, although the Riskmetrics tries to avoid relying on sample observations and make use of additional information contained in the assumed distribution function, its normally distributional assumption is also unrealistic from the results of examining the collected data. The normal-GARCH(1,1) model and the student-t GARCH(1,1) model, on the other hand, can capture the fat tails and volatility clustering which occur in the observed financial time series data, but their returns standard distributional assumption is also impossible comparing to the empirical data. Despite all these, the thesis still uses the four models under the standard distributional assumption of returns to comparing and evaluating their estimated results with the predicted results based on the student distributional assumption of returns. Besides, since the empirical data experiences fatter tails more than that of the normal distribution, the essay intentionally employs the Cornish-Fisher Expansion technique to correct the z-value from the normal distribution to account for fatter tails, and then compare these results with the two results above. Therefore, in this chapter, we purposely calculate VaR by separating these three procedures into three different sections and final results will be discussed in length in chapter 4. 3.3.1. Components of VaR measures Throughout the analysis, a holding period of one-trading day will be used. For the significance level, various values for the left tail probability level will be considered, ranging from the very conservative level of 1 percent to the mid of 2.5 percent and to the less cautious 5 percent. The various VaR models will be estimated using the historical data of the two single return index samples, stretches from 05/06/2002 through 31/07/2007 (consisting of 1305 and 1298 prices observations for the FTSE 100 and the SP 500, respectively) for making the parameter estimation, and from 01/08/2007 to 22/06/2009 for predicting VaRs and backtesting. One interesting point here is that since there are few previous empirical studies examining the performance of VaR models during periods of financial crisis, the paper deliberately backtest the validity of VaR models within the current global financial crisis from the beginning in August 2007. 3.3.2. Calculation of VaR 3.3.2.1. Non-parametric approach Historical Simulation As mentioned above, the historical simulation model pretends that the change in market factors from today to tomorrow will be the same as it was some time ago, and therefore, it is computed based on the historical returns distribution. Consequently, we separate this non-parametric approach into a section. The chapter 2 has proved that calculating VaR using the historical simulation model is not mathematically complex since the measure only requires a rational period of historical data. Thus, the first task is to obtain an adequate historical time series for simulating. There are many previous studies presenting that predicted results of the model are relatively reliable once the window length of data used for simulating daily VaRs is not shorter than 1000 observed days. In this sense, the study will be based on a sliding window of the previous 1305 and 1298 prices observations (1304 and 1297 returns observations) for the FTSE 100 and the SP 500, respectively, spanning from 05/06/2002 through 31/07/2007. We have selected this rather than larger windows is since adding more historical data means adding older historical data which could be irrelevant to the future development of the returns indexes. After sorting in ascending order the past returns attributed to equally spaced classes, the predicted VaRs are determined as that log-return lies on the target percentile, say, in the thesis is on three widely percentiles of 1%, 2.5% and 5% lower tail of the return distribution. The result is a frequency distribution of returns, which is displayed as a histogram, and shown in Figure 3.11a and 3.11b below. The vertical axis shows the number of days on which returns are attributed to the various classes. The red vertical lines in the histogram separate the lowest 1%, 2.5% and 5% returns from the remaining (99%, 97.5% and 95%) returns. For FTSE 100, since the histogram is drawn from 1304 daily returns, the 99%, 97.5% and 95% daily VaRs are approximately the 13th, 33rd and 65th lowest return in this dataset which are -3.2%, -2.28% and -1.67%, respectively and are roughly marked in the histogram by the red vertical lines. The interpretation is that the VaR gives a number such that there is, say, a 1% chance of losing more than 3.2% of the single asset value tomorrow (on 01st August 2007). The SP 500 VaR figures, on the other hand, are little bit smaller than that of the UK stock index with -2.74%, -2.03% and -1.53% corresponding to 99%, 97.5% and 95% confidence levels, respectively. Figure 3.11a: Histogram of daily returns of FTSE 100 between 05/06/2002 and 31/07/2007 Figure 3.11b: Histogram of daily returns of SP 500 between 05/06/2002 and 31/07/2007 Following predicted VaRs on the first day of the predicted period, we continuously calculate VaRs for the estimated period, covering from 01/08/2007 to 22/06/2009. The question is whether the proposed non-parametric model is accurately performed in the turbulent period will be discussed in length in the chapter 4. 3.3.2.2. Parametric approaches under the normal distributional assumption of returns This section presents how to calculate the daily VaRs using the parametric approaches, including the RiskMetrics, the normal-GARCH(1,1) and the student-t GARCH(1,1) under the standard distributional assumption of returns. The results and the validity of each model during the turbulent period will deeply be considered in the chapter 4. 3.3.2.2.1. The RiskMetrics Comparing to the historical simulation model, the RiskMetrics as discussed in the chapter 2 does not solely rely on sample observations; instead, they make use of additional information contained in the normal distribution function. All that needs is the current estimate of volatility. In this sense, we first calculate daily RiskMetrics variance for both the indexes, crossing the parameter estimated period from 05/06/2002 to 31/07/2007 based on the well-known RiskMetrics variance formula (2.9). Specifically, we had the fixed decay factor ÃŽ »=0.94 (the RiskMetrics system suggested using ÃŽ »=0.94 to forecast one-day volatility). Besides, the other parameters are easily calculated, for instance, and are the squared log-return and variance of the previous day, correspondingly. After calculating the daily variance, we continuously measure VaRs for the forecasting period from 01/08/2007 to 22/06/2009 under different confidence levels of 99%, 97.5% and 95% based on the normal VaR formula (2.6), where the critical z-value of the normal distribution at each significance level is simply computed using the Excel function NORMSINV. 3.3.2.2.2. The Normal-GARCH(1,1) model For GARCH models, the chapter 2 confirms that the most important point is to estimate the model parameters ,,. These parameters has to be calculated for numerically, using the method of maximum likelihood estimation (MLE). In fact, in order to do the MLE function, many previous studies efficiently use professional econometric softwares rather than handling the mathematical calculations. In the light of evidence, the normal-GARCH(1,1) is executed by using a well-known econometric tool, STATA, to estimate the model parameters (see Table 3.2 below). Table 3.2. The parameters statistics of the Normal-GARCH(1,1) model for the FTSE 100 and the SP 500 Normal-GARCH(1,1)* Parameters FTSE 100 SP 500 0.0955952 0.0555244 0.8907231 0.9289999 0.0000012 0.0000011 + 0.9863183 0.9845243 Number of Observations 1304 1297 Log likelihood 4401.63 4386.964 * Note: In this section, we report the results from the Normal-GARCH(1,1) model using the method of maximum likelihood, under the assumption that the errors conditionally follow the normal distribution with significance level of 5%. According to Table 3.2, the coefficients of the lagged squared returns () for both the indexes are positive, concluding that strong ARCH effects are apparent for both the financial markets. Also, the coefficients of lagged conditional variance () are significantly positive and less than one, indicating that the impact of ‘old’ news on volatility is significant. The magnitude of the coefficient, is especially high (around 0.89 – 0.93), indicating a long memory in the variance. The estimate of was 1.2E-06 for the FTSE 100 and 1.1E-06 for the SP 500 implying a long run standard deviation of daily market return of about 0.94% and 0.84%, respectively. The log-likehood for this model for both the indexes was 4401.63 and 4386.964 for the FTSE 100 and the SP 500, correspondingly. The Log likehood ratios rejected the hypothesis of normality very strongly. After calculating the model parameters, we begin measuring conditional variance (volatility) for the parameter estimated period, covering from 05/06/2002 to 31/07/2007 based on the conditional variance formula (2.11), where and are the squared log-return and conditional variance of the previous day, respectively. We then measure predicted daily VaRs for the forecasting period from 01/08/2007 to 22/06/2009 under confidence levels of 99%, 97.5% and 95% using the normal VaR formula (2.6). Again, the critical z-value of the normal distribution under significance levels of 1%, 2.5% and 5% is purely computed using the Excel function NORMSINV. 3.3.2.2.3. The Student-t GARCH(1,1) model Different from the Normal-GARCH(1,1) approach, the model assumes that the volatility (or the errors of the returns) follows the Student-t distribution. In fact, many previous studies suggested that using the symmetric GARCH(1,1) model with the volatility following the Student-t distribution is more accurate than with that of the Normal distribution when examining financial time series. Accordingly, the paper additionally employs the Student-t GARCH(1,1) approach to measure VaRs. In this section, we use this model under the normal distributional assumption of returns. First is to estimate the model parameters using the method of maximum likelihood estimation and obtained by the STATA (see Table 3.3). Table 3.3. The parameters statistics of the Student-t GARCH(1,1) model for the FTSE 100 and the SP 500 Student-t GARCH(1,1)* Parameters FTSE 100 SP 500 0.0926120 0.0569293 0.8946485 0.9354794 0.0000011 0.0000006 + 0.9872605 0.9924087 Number of Observations 1304 1297 Log likelihood 4406.50 4399.24 * Note: In this section, we report the results from the Student-t GARCH(1,1) model using the method of maximum likelihood, under the assumption that the errors conditionally follow the student distribution with significance level of 5%. The Table 3.3 also identifies the same characteristics of the student-t GARCH(1,1) model parameters comparing to the normal-GARCH(1,1) approach. Specifically, the results of , expose that there were evidently strong ARCH effects occurred on the UK and US financial markets during the parameter estimated period, crossing from 05/06/2002 to 31/07/2007. Moreover, as Floros (2008) mentioned, there was also the considerable impact of ‘old’ news on volatility as well as a long memory in the variance. We at that time follow the similar steps as calculating VaRs using the normal-GARCH(1,1) model. 3.3.2.3. Parametric approaches under the normal distributional assumption of returns modified by the Cornish-Fisher Expansion technique The section 3.3.2.2 measured the VaRs using the parametric approaches under the assumption that the returns are normally distributed. Regardless of their results and performance, it is clearly that this assumption is impractical since the fact that the collected empirical data experiences fatter tails more than that of the normal distribution. Consequently, in this section the study intentionally employs the Cornish-Fisher Expansion (CFE) technique to correct the z-value from the assumption of the normal distribution to significantly account for fatter tails. Again, the question of whether the proposed models achieved powerfully within the recent damage time will be assessed in length in the chapter 4. 3.3.2.3.1. The CFE-modified RiskMetrics Similar