Liye

MG4009 Quantitative Financial Modelling

Coursework_2: TO BE SUBMITTED IN THE LECTURE W/B 25/02/2013

Assessed Coursework_2

The coursework question is based around the following data analysis scenario:

A Business Analyst in the financial investment sector is studying the annual bonus payments made to financial traders. As part of the study 176 financial traders were interviewed and the following sample data was recorded:
Sample Data

Minitab Column Variable Name Variable Description

C1 Bonus Annual bonus (£) paid to trader.

C2 Years Number of years experience as a trader.

C3 Score Trading competency score – the higher the score

the better the trader performed in a competency test.

C4 Profit The amount of profit - (£millions) - made by the

trader over the last year.

C5 Experience Type of experience the trader has:

Code 1 = experience in one financial market only;

Code 2 = experience in more than one financial market.

C6 Market Current financial market the trader is working

in. The possible financial markets are:

Code 1 = Share Option dealings;

Code 2 = Foreign Exchange dealings;

Code 3 = Government Bond dealings; and

Code 4 = Ordinary Share dealings.

The sample data is available as the MINITAB worksheet file BONUS and as a csv file Bomus_CW_2.

a) Explain what is meant by a traditional regression model. Hence

i. Define R2, and explain how it can be used to compare competing regression models and why R2_adjusted is needed.

ii. Explain what is meant by a t-test within the context of regression modelling.

iii. Discuss the differences between a multiple regression model and a GLM.

b) Use a 2-stage GLM procedure to model