The Basel framework does not permit which of the following Units of Measure (UoM) for operational risk modeling:

I. UoM based on legal entity

II. UoM based on event type

III. UoM based on geography

IV. UoM based on line of business

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Which of the following is not an approach proposed by the Basel II framework to compute

operational risk capital?

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Which of the following steps are required for computing the aggregate distribution for a UoM for operational risk once loss frequency and severity curves have been estimated:

I. Simulate number of losses based on the frequency distribution

II. Simulate the dollar value of the losses from the severity distribution

III. Simulate random number from the copula used to model dependence between the UoMs

IV. Compute dependent losses from aggregate distribution curves

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Which of the following are valid approaches to leveraging external loss data for modeling operational risks:

I. Both internal and external losses can be fitted with distributions, and a weighted average approach using these distributions is relied upon for capital calculations.

II. External loss data is used to inform scenario modeling.

III. External loss data is combined with internal loss data points, and distributions fitted to the combined data set.

IV. External loss data is used to replace internal loss data points to create a higher quality data set to fit distributions.

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If the duration of a bond yielding 10% is 6 years, the volatility of the underlying interest rates 5% per annum, what is the 10-day VaR at 99% confidence of a bond position comprising just this bond with a value of $10m? Assume there are 250 days in a year.

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Which of the following is a valid approach to determining the magnitude of a shock for a given risk factor as part of a historical stress testing exercise?

I. Determine the maximum peak-to-trough change in the risk factor over the defined period of the historical event

II. Determine the minimum peak-to-trough change in the risk factor over the defined period of the historical event

III. Determine the total change in the risk factor between the start date and the finish date of the event regardless of peaks and troughs in between

IV. Determine the maximum single day change in the risk factor and multiply by the number of days covered by the stress event

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Which of the following are valid techniques used when performing stress testing based on hypothetical test scenarios:

I. Modifying the covariance matrix by changing asset correlations

II. Specifying hypothetical shocks

III. Sensitivity analysis based on changes in selected risk factors

IV. Evaluating systemic liquidity risks

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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

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Which of the following formulae describes Marginal VaR for a portfolio p, where 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)

All of the above

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The definition of operational risk per Basel II includes which of the following:

I. Risk of loss resulting from inadequate or failed internal processes, people and systems or from external events

II. Legal risk

III. Strategic risk

IV. Reputational risk

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