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1. Identify the correct sequence of events as it unfolded in the credit crisis beginning 2007:
I. Mortgage defaults increased
II. Collapse in prices of unrelated assets as banks tried to create liquidity III. Banks refused to lend or transact with each other IV. Asset prices for CDOs collapsed
A) I, IV, III and II
B) III, IV, I and II
C) IV, I, II and III
D) I, III, IV and II
2. Which of the following statements are true in relation to Monte Carlo based VaR calculations:
I. Monte Carlo VaR relies upon a full revalution of the portfolio for each simulation II. Monte Carlo VaR relies upon the delta or delta-gamma approximation for valuation III. Monte Carlo VaR can capture a wide range of distributional assumptions for asset returns IV. Monte Carlo VaR is less compute intensive than Historical VaR
A) I and III
B) All of the above
C) I, III and IV
D) II and IV
3. Which of the following decisions need to be made as part of laying down a system for calculating VaR:
I. How returns are calculated, eg absoluted returns, log returns or relative/percentage returns II. Whether VaR is calculated based on historical simulation, Monte Carlo, or is computed parametrically III. Whether binary/digital options are included in the portfolio positions IV. How volatility is estimated
A) I and III
B) All of the above
C) I, II and IV
D) II and IV
4. A risk analyst attempting to model the tail of a loss distribution using EVT divides the available dataset into blocks of data, and picks the maximum of each block as a data point to consider.
Which approach is the risk analyst using?
A) Expected loss approach
B) Block Maxima approach
C) Peak-over-thresholds approach
D) Fourier transformation
5. Which of the following statements is true in respect of a non financial manufacturing firm?
I. Market risk is not relevant to the manufacturing firm as it does not take proprietary positions II. The firm faces market risks as an externality which it must bear and has no control over III. Market risks can make a comparative assessment of profitability over time difficult IV. Market risks for a manufacturing firm are not directionally biased and do not increase the overall risk of the firm as they net to zero over a long term time horizon
A) III only
B) III and IV
C) IV only
D) I and II
Solutions:
| Question # 1 Answer: A | Question # 2 Answer: A | Question # 3 Answer: C | Question # 4 Answer: B | Question # 5 Answer: A |
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