Which of the following credit risk models considers debt as including a put option on the firm's assets toassess credit risk?
Which of the following statements are true:
I. A transition matrix is the probability of a security migrating from one rating class to another during its lifetime.
II. Marginal default probabilities refer to probabilities of default in a particular period, given survival atthe beginning of that period.
III. Marginal default probabilities will always be greater than the corresponding cumulative default probability.
IV. Loss given default is generally greater when recovery rates are low.
A risk analyst peforming PCA wishes to explain80% of the variance. The first orthogonal factor has a volatility of 100, and the second 40, and the third 30. Assume there are no other factors. Which of the factors will be included in the final analysis?
If the cumulative default probabilities of default for years 1 and 2 for a portfolio of credit risky assets is 5% and 15% respectively, what is the marginal probability of default in year 2 alone?
Which of the following are considered properties of a 'coherent' risk measure:
I. Monotonicity
II. Homogeneity
III. Translation Invariance
IV. Sub-additivity
Under the contingent claims approach to credit risk, risk increases when:
I. Volatility of the firm's assets increases
II. Risk free rate increases
III. Maturity of the debt increases
When modeling severity of operational risk losses using extreme value theory (EVT), practitioners often use which of the following distributions to model loss severity:
I. The 'Peaks-over-threshold' (POT) model
II. Generalized Pareto distributions
III. Lognormal mixtures
IV. Generalized hyperbolic distributions
Which of the following is true for the actuarial approach to credit risk modeling (CreditRisk+):
According to Basel II's definition of operational loss event types, losses due to acts by third parties intended to defraud, misappropriate property or circumvent the law are classified as:
As opposed to traditional accounting based measures, risk adjusted performance measures use which of the following approaches to measure performance:
A financial institution is considering shedding a business unit to reduce its economic capital requirements. Which of the following is an appropriate measure of theresulting reduction in capital requirements?
Which of the following are valid methods for selecting an appropriate model from the model space for severity estimation:
I. Cross-validation method
II. Bootstrap method
III. Complexity penalty method
IV. Maximum likelihood estimation method
A bank extends a loan of $1m to a home buyer to buy a house currently worth $1.5m, with the house serving as the collateral. The volatility of returns (assumed normally distributed) on house prices in that neighborhood is assessed at 10% annually. The expected probability of default of the home buyer is 5%.
What is the probability that the bank will recover less than the principal advanced on this loan; assuming the probability of the home buyer's default is independent of the value of the house?
Loss from a lawsuit from an employee due to physical harm caused while at work is categorized per Basel II as:
According to the Basel II framework, subordinated term debt that was originally issued 4 years ago with amaturity of 6 years is considered a part of:
There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the probability of the two bonds defaulting simultaneously is 1.4%, what is the default correlation between the two?
Which of the formulae below describes incremental VaR where a new position 'm' is added to the portfolio? (where p is theportfolio, and V_i is the value of the i-th asset in the portfolio. All other notation and symbols have their usual meaning.)
A)
B)
C)
D)
Which of the following statements are true:
I. Pre-settlement risk is the risk that one of the parties to a contract might default prior to the maturity date or expiry of the contract.
II. Pre-settlement risk can be partly mitigated by providing for early settlement in the agreements between the counterparties.
III. The current exposure from an OTC derivatives contract is equivalent to its current replacement value.
IV. Loan equivalent exposures are calculated even for exposures that are not loans as a practical matter for calculating credit risk exposure.
Which of the following need to be assumed to convert a transition probability matrix for a given time period to the transition probability matrix for another length of time:
I. Time invariance
II. Markov property
III. Normal distribution
IV. Zero skewness
Under the KMV Moody's approach to calculating expectingdefault frequencies (EDF), firms' default on obligations is likely when:
A corporate bond maturing in 1 year yields 8.5% per year,while a similar treasury bond yields 4%. What is the probability of default for the corporate bond assuming the recovery rate is zero?
A bank prices retail credit loans based on median default rates. Over the long run, it can expect:
Which of the following risks and reasons justify the use of scenario analysis in operational riskmodeling:
I. Risks for which no internal loss data is available
II. Risks that are foreseeable but have no precedent, internally or externally
III. Risks for which objective assessments can be made by experts
IV. Risks that are known to exist, but for which no reliable external or internal losses can be analyzed
V. Reducing the complexity of having to fit statistical models to internal and external loss data
VI. Managing the capital estimation process as to produce estimates in line with management's desired capital buffers.
When pricing credit risk for an exposure, which of the following is a better measure than the others:
CreditRisk+, the actuarial model for calculating portfolio credit risk, is based upon:
If E denotes the expected value of a loan portfolio at the end on one year and U the value of the portfolio in the worst case scenario at the 99% confidence level, which of the following expressions correctly describes economic capital requiredin respect of credit risk?
There are three bonds in a diversified bond portfolio, whose default probabilities are independent of each other and equal to 1%, 2% and 3% respectively over a 1 year time horizon. Calculate the probability that none of the three bonds will default.
According to the Basel framework, shareholders' equity and reserves are considered a part of: