Online Access Free 8008 Practice Test

The accuracy of a VaR estimate based on a Monte carlo simulation of portfolio prices is affected by:
I. The shape of the distribution of portfolio values
II. The number simulations carried out
III. The confidence level selected for the VaR estimate

• A.I, II and III
• B.B
• C.II and III
• D.III
• E.II

Which of the following statements are true:
I. Top down approaches help focus management attention on the frequency and severity of loss events, while bottom up approaches do not.
II. Top down approaches rely upon high level data while bottom up approaches need firm specific risk data to estimate risk.
III. Scenario analysis can help capture both qualitative and quantitative dimensions of operational risk.

• A.II only
• B.III only
• C.I only
• D.II and III

In setting confidence levels for VaR estimates for internal limit setting, it is generally desirable:

• A.that actual losses exceed the VaR estimates with some reasonably observable frequency that is neither too high nor too low
• B.that actual losses very frequently exceed the VaR estimates
• C.that actual losses never exceed the VaR estimates
• D.that actual losses exceed the VaR estimates on only the rarest of occasions

Concentration risk in a credit portfolio arises due to:

• A.Independence of individual default losses for the assets in the portfolio
• B.A low degree of correlation between the default probabilities of the credit securities in the portfolio
• C.Issuers of the securities in the portfolio being located in the same country
• D.A high degree of correlation between the default probabilities of the credit securities in the portfolio

Pick underlying risk factors for a position in an equity index option:
I. Spot value for the index
II. Risk free interest rate
III. Volatility of the underlying
IV. Strike price for the option

• A.I, II and III
• B.I and IV
• C.All of the above
• D.II and II