1.Consider the delta-normal and full-r*uation approaches to estimating the VAR of non-linear derivative instruments. Which of the following is NOT a requirement for either the delta-normal or full-r*uation approach?
　　A. The VAR(1%) of the underlying asset is adjusted by a factor reflecting the price sensitivity of the derivative price to changes in the underlying asset price.
　　B. A second order adjustment is made to the underlying asset VAR(1%) to account for the non-linear relationship between the derivative and the underlying asset.
　　C. The VAR(1%) of the derivative is calculated by r*uing the derivative at the price corresponding to a VAR(1%) decline in the value of the underlying asset.
　　D. The VAR(1%) of the asset underlying the derivative is based on an assumed normal distribution.
　　2.To qualify to use the Intemal Ratings Based (IRB) approach under Basel 11, banks need to fulfill certain minimum requirements. One ofthese is "Corporate Govemance and Oversight". Under this, credit risk control is an important component. Which of the following is not an area of responsibility of a credit risk control function?
　　A. Testing and monitoring intemal grades.
　　B. Implementing procedures to verify that rating definitions are consistently applied across departments and geographic areas.
　　C. Reviewing and documenting any changes to the rating process, including the reasons for the changes.
　　D. Origination of various types of credit exposures.
　　Answer:
　　1.D
　　The delta-normal approach to estimating the VAR of a non-linear derivative adjusts the VAR of the underlying asset for the delta (slope) and gamma (curvature) of the relationship between the derivative and the underlying. The VAR of the underlying asset can be calculated using parametric methods (assuming a normal distribution) or using historical methods (which does not assume a normal distribution).
　　2.D
　　A. Incorrect. It is an area of responsibility of Credit Risk Control function.
　　B. Incorrect. It is an area of responsibility of Credit Risk Control function.
　　C. Incorrect. It is an area of responsibility of Credit Risk Control function.
　　D. Correct. It is not an area of responsibility of Credit Risk Control function.