QQ登錄
微博登錄
微信登錄
1. Your firm does market direction neutral arbitrage in the spread between US Treasuries and Argentina bonds. Your trader plans to buy default swaps on Argentina. Then he wants to increase the size of position to $1,500 million. As a risk manager, apart from basis risk, your main concern will be that:
A. US yields would fly up too soon.
B. liquidity in US Treasuries will dry up.
C. liquidity in Argentina bonds will dry up.
D. CDS writer may go bankrupt, leaving you uncovered.
2. The VaR of a portfolio at a 95% confidence level is 15.2. If the confidence level is raised to 99% (assuming a one-tailed normal distribution) the new value of VaR will be closest to:
A. 10.8.
B. 15.2.
C. 18.1.
D. 21.5.
3. A particular operational risk event is estimated to occur once in 200 years for an institution. The loss for this type of event is expected to be between HKD 25 million and HKD 100 million with equal probability of loss in that range (and zero probability outside that range). Based on this information, determine the fair price of insurance to protect the institution against a loss of over HKD 80 million for this particular operational risk.
A. HKD 133,333
B. HKD 90,000
C. HKD 120,000
D. HKD 106,667
4. In august 2006, the hedge fund Amaranth had large calendar spread positions in natural gas. According to historical VaR models, such spread positions would have had limited risk. In light of the dramatic losses to the funds, which led to Amaranth’s collapse in September 2006, its risk management policies came under scrutiny. Keeping the fund’s policies, trading, and position limits unchanged, which of the following risk management policies could have better captured the extent of the risks that sank Amaranth?
i. Using Riskmetrics-type VaR instead of a historical VaR to estimate its risk exposures.
ii. Adding counterparty risk to its risk measurement.
iii. implementing stress tests to quantify possible losses if it had to liquidate large
positions.
iv. Including operational VaR to its risk measurement.
A. ii, iii, and iv only
B. i, ii, iii, and iv
C. i and iii only
D. None of the changes would have helped
5. Assume Satya Bank, having a capital of USD 500 million, wants to limit its losses in the energy sector to 6% and in the construction sector to 4.5% of its capital. The LGD rates for the energy and construction sectors are, respectively, 45% and 70%. If Satya Bank wants to strictly adhere to its concentration limit policy, the maximum permitted loan amount to the energy and construction sectors will be:
Energy Construction
A. USD 66.7 million USD 32.1 million
B. USD 13.5 million USD 15.8 million
C. USD 37.5 million USD77.8 million
D. USD 30.0 million USD 22.5 million
Answer
1. Correct answer: C
Liquidity risk is the most prominent form of risk when emerging markets securities are involved.
2. Correct answer: D
95% confidence level requires a volatility multiple (alpha) of 1.65 while 99% confidence level requires a multiple of 2.33. Since VaR is directly proportional to this multiple, the 99% confidence level VaR = 15.2 x 2.33 / 1.65 = 21.5
3. Answer: C
The range of losses is HKD 25 million to HKD 100 million, with equal probability. The probability of a loss being greater than HKD 80 million is (100 - 80)/(100 - 25) or 20/75. If the loss is over HKD 80, the expected loss (being equally probable) would be HKD 90 million:
Expected value of loss
= (100 million+80 million) / 2*(20/75)*(1/200) = HKD120,000
4. Answer: C
Amaranth
5. Answer: A
A is correct. Concentration Limit = Capital x (loss limit on capital / loss rate of the sector) Concentration Limit for Energy = USD 500 million x (0.06 / 0.45) = USD 66,666,667. Concentration Limit for Constr. = USD 500 million x (0.045 / 0.70) = USD 32,142,857.
B is incorrect. It uses incorrect variables and/or formula to calculate concentration limits.
C is incorrect. It uses incorrect variables and/or formula to calculate concentration limits.
D is incorrect. It uses incorrect variables and/or formula to calculate concentration limits.
