Question 1

Which of the following is true of the historical simulation method for calculating VaR?

Accepted Answer

A)   It fits historical data on the behavior of variables to a normal distribution
B)   It fits historical data on the behavior of variables to a lognormal distribution
C)   It assumes that what will happen in the future is a random sample from what has happened in the past
D)   It uses Monte Carlo simulation to create random future scenariosE) None of the above
F) B) and C)

Question 2

What is the method of testing how often a VaR with a certain confidence level was exceeded in the past called?

Accepted Answer

A)   Stress testing
B)   Back testing
C)   EWMA
D)   The model-building approachE) A) and B)
F) A) and C)

Question 3

Which of the following is true of a covariance matrix?

Accepted Answer

A)   The numbers on the diagonal are variances
B)   The numbers on the diagonal are standard deviations
C)   The numbers on the diagonal are all one.
D)   The numbers on the diagonal are all zeroE) A) and B)
F) A) and C)

Question 4

In the case of interest rate movements the most important factor corresponds to

Accepted Answer

A)   A parallel shift
B)   A slope change
C)   A bowing
D)   An increase in short ratesE) A) and D)
F) A) and C)

Question 5

Which of the following is true?

Accepted Answer

A)   Cash flow mapping is a way of calculating the present value of cash flows
B)   Cash flow mapping is used to handle interest rate exposures in the model building approach
C)   Cash flow mapping is used to handle interest rate exposures in the historical simulation approach
D)   None of the aboveE) All of the above
F) B) and D)

Question 6

Which of the following is true?

Accepted Answer

A)   The quadratic model approximates daily changes using delta and gamma
B)   The quadratic model approximates daily changes using delta, but not gamma
C)   The quadratic model approximates daily changes using gamma, but not delta
D)   None of the aboveE) A) and C)
F) A) and B)

Question 7

The gain from a project is equally likely to have any value between −$0.15 million and +$0.85 million.What is the 99% expected shortfall?

Accepted Answer

A)   $0.145 million
B)   $0.14 million
C)   $0.13 million
D)   $0.10 millionE) A) and B)
F) All of the above

Question 8

The 10-day VaR is often assumed to be which of the following

Accepted Answer

A)   The 1-day VaR multiplied by 10
B)   The 1-day VaR multiplied by the square root of10
C)   The 1-day VaR divided by 10
D)   The 1-day VaR divided by the square root of 10E) A) and C)
F) All of the above

Question 9

A position in options on a particular stock has a delta of zero and a gamma of 4.The stock price is 10.Which of the following is the approximate relation between the change in the portfolio value in one day,dP,and the return on the stock,dx

Accepted Answer

A)   dP = 4 times the square of dx
B)   dP = 2 times the square of dx
C)   dP = 20 times the square of dx
D)   dP = 200 times the square of dxE) B) and C)
F) A) and D)

Question 10

Which was the minimum capital requirement for market risk in the 1996 BIS Amendment?

Accepted Answer

A)   At least 3 times the 10-day VaR with a 99% confidence level
B)   At least 3 times 7-day VaR with a 97% confidence level
C)   At least 2 times 5-day VaR with a 95% confidence level
D)   1-day VaR with a 99% confidence levelE) All of the above
F) None of the above

Question 11

Which of the following is true of the 99.9% value at risk?

Accepted Answer

A)   There is 1 chance in 10 that the loss will be greater than the value of risk
B)   There is 1 chance in 100 that the loss will be greater than the value of risk
C)   There is 1 chance in 1000 that the loss will be greater than the value of risk
D)   None of the aboveE) None of the above
F) All of the above

Question 12

In a principal components analysis which of the following is the quantity of a particular factor in an observation

Accepted Answer

A)   Factor loading
B)   Factor score
C)   Factor size
D)   Factor ratingE) B) and C)
F) A) and C)

Question 13

In the case of interest rate movements the second most important factor corresponds to

Accepted Answer

A)   A parallel shift
B)   A slope change
C)   A bowing
D)   An increase in short ratesE) None of the above
F) A) and D)

Question 14

Consider a position in options on a particular stock.The position has a delta of 12 and the stock price is 10.Which of the following is the approximate relation between the change in the portfolio value in one day,dP,and the return on the stock during the day,dx

Accepted Answer

A)   dP=12dx
B)   dP=1.2dx
C)   dP=120dx
D)   dP=22dxE) A) and C)
F) B) and D)

Question 15

Which of the following is true when delta,but not gamma,is used in calculating VaR for option positions?

Accepted Answer

A)   VaR for a long call is too low and VaR for a long put is too low
B)   VaR for a long call is too low and VaR for a long put is too high
C)   VaR for a long call is too high and VaR for a long put is too low
D)   VaR for a long call is too high and VaR for a long put is too highE) B) and C)
F) A) and D)

Question 16

Which of the following is true

Accepted Answer

A)   Expected shortfall is always less than VaR
B)   Expected shortfall is always greater than VaR
C)   Expected shortfall is sometimes greater than VaR and sometimes less than VaR
D)   Expected shortfall is a measure of liquidity risk wheras VaR is a measure of market riskE) A) and B)
F) A) and C)

Question 17

A German bank has exposure to the S&P500.Which of the following is true

Accepted Answer

A)   The S&P 500 index should be always be measured in U.S. dollars when VaR is calculated
B)   The S&P 500 index should be always be measured in euros when VaR is calculated
C)   Either A or B can be done
D)   The S&P 500 index should be measured in euros only if the bank has not got a U.S. subsidiary.E) None of the above
F) C) and D) B

Question 18

An investor has $2,000 invested in stock A and $5,000 in stock B. The daily volatilities of A and B are 1.5% and 1% respectively and the coefficient of correlation is 0.8. What is the one day 99% VaR? Assume that returns are multivariate normal (Note that N(-2.326) =0.01)

Accepted Answer

A)   $177
B)   $135
C)   $215
D)   $331E) A) and D)
F) A) and C)

Question 19

The gain from a project is equally likely to have any value between -$0.15 million and +$0.85 million.What is the 99% value at risk?

Accepted Answer

A)   $0.145 million
B)   $0.14 million
C)   $0.13 million
D)   $0.10 millionE) B) and C)
F) All of the above B

Question 20

Which of the following describes stressed VaR?

Accepted Answer

A)   It is based on movements in market variables in stressed market conditions
B)   It is VaR with a very high confidence level
C)   It is VaR multiplied by a factor of 3
D)   None of the aboveE) All of the above
F) C) and D) A

Exam 22: Value at Risk and Expected Shortfall

Which of the following is true of the historical simulation method for calculating VaR?

Correct AnswerverifiedShow Answer

What is the method of testing how often a VaR with a certain confidence level was exceeded in the past called?

Correct AnswerverifiedShow Answer

Which of the following is true of a covariance matrix?

Correct AnswerverifiedShow Answer

In the case of interest rate movements the most important factor corresponds to

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

The gain from a project is equally likely to have any value between −$0.15 million and +$0.85 million.What is the 99% expected shortfall?

Correct AnswerverifiedShow Answer

The 10-day VaR is often assumed to be which of the following

Correct AnswerverifiedShow Answer

A position in options on a particular stock has a delta of zero and a gamma of 4.The stock price is 10.Which of the following is the approximate relation between the change in the portfolio value in one day,dP,and the return on the stock,dx

Correct AnswerverifiedShow Answer

Which was the minimum capital requirement for market risk in the 1996 BIS Amendment?

Correct AnswerverifiedShow Answer

Which of the following is true of the 99.9% value at risk?

Correct AnswerverifiedShow Answer

In a principal components analysis which of the following is the quantity of a particular factor in an observation

Correct AnswerverifiedShow Answer

In the case of interest rate movements the second most important factor corresponds to

Correct AnswerverifiedShow Answer

Consider a position in options on a particular stock.The position has a delta of 12 and the stock price is 10.Which of the following is the approximate relation between the change in the portfolio value in one day,dP,and the return on the stock during the day,dx

Correct AnswerverifiedShow Answer

Which of the following is true when delta,but not gamma,is used in calculating VaR for option positions?

Correct AnswerverifiedShow Answer

Which of the following is true

Correct AnswerverifiedShow Answer

A German bank has exposure to the S&P500.Which of the following is true

Correct AnswerverifiedB

An investor has $2,000 invested in stock A and $5,000 in stock B. The daily volatilities of A and B are 1.5% and 1% respectively and the coefficient of correlation is 0.8. What is the one day 99% VaR? Assume that returns are multivariate normal (Note that N(-2.326) =0.01)

Correct AnswerverifiedShow Answer

The gain from a project is equally likely to have any value between -$0.15 million and +$0.85 million.What is the 99% value at risk?

Correct AnswerverifiedB

Which of the following describes stressed VaR?

Correct AnswerverifiedA

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