Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million,
with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio
VaR at 99% confidence level?
Probability Cumulative Normal distribution
0.90 1.282
0.91 1.341
0.92 1.405
0.93 1.476
0.94 1.555
0.95 1.645
0.96 1.751
0.97 1.881
0.98 2.054
0.99 2.326

Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior
of banks would be an example of regulatory arbitrage?

Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in
time?

Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration
measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield
curve?

Why is economic capital across market, credit and operational risks simply added up to arrive at an estimate of
aggregate economic capital in practice?