The daily VaR of an investor’s commodity position is $10m. The annual VaR, assuming daily returns are independent, is ~$158m (using the square root of time rule).

Which of the following statements are correct?

I. If daily returns are not independent and show mean-reversion, the actual annual VaR will be higher than $158m.

II. If daily returns are not independent and show mean-reversion, the actual annual VaR will be lower than $158m.

III. If daily returns are not independent and exhibit trending (autocorrelation), the actual annual VaR will be higher than $158m.

IV. If daily returns are not independent and exhibit trending (autocorrelation), the actual annual VaR will be lower than $158m.

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Which of the following is a most complete measure of the liquidity gap facing a firm?

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Which of the following statements is a correct description of the phrase present value of a basis point?

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Calculate the 99% 1-day Value at Risk of a portfolio worth $10m with expected returns of 10% annually and volatility of 20%.

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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 required in respect of credit risk?

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Which of the following are valid objectives of a reverse stress test:

I. Ensure that a firm can survive for long enough after risks have materialized for it to either regain market confidence, restructure or be sold, or be closed down in an orderly manner,

II. Discover the vulnerabilities of the current business plan,

III. Better integrate business and capital planning,

IV. Create a ‘zero-failure’ environment at the systemic level in the financial sector

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The VaR of a portfolio at the 99% confidence level is $250,000 when mean return is assumed to be zero. If the assumption of zero returns is changed to an assumption of returns of $10,000, what is the revised VaR?

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A Bank Holding Company (BHC) is invested in an investment bank and a retail bank. The BHC defaults for certain if either the investment bank or the retail bank defaults. However, the BHC can also default on its own without either the investment bank or the retail bank defaulting. The investment bank and the retail bank’s defaults are independent of each other, with a probability of default of 0.05 each. The BHC’s probability of default is 0.11.

What is the probability of default of both the BHC and the investment bank? What is the probability of the BHC’s default provided both the investment bank and the retail bank survive?

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When pricing credit risk for an exposure, which of the following is a better measure than the others:

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Which of the following statements are true:

I. The sum of unexpected losses for individual loans in a portfolio is equal to the total unexpected loss for the portfolio.

II. The sum of unexpected losses for individual loans in a portfolio is less than the total unexpected loss for the portfolio.

III. The sum of unexpected losses for individual loans in a portfolio is greater than the total unexpected loss for the portfolio.

IV. The unexpected loss for the portfolio is driven by the unexpected losses of the individual loans in the portfolio and the default correlation between these loans.

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