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For a loan portfolio, unexpected losses are charged against:A . Credit reservesB . Economic credit capitalC . Economic capitalD . Regulatory capitalView AnswerAnswer: B Explanation: Credit reserves are created in respect of expected losses, which are considered the cost of doing business. Unexpected losses are borne by economic credit capital,...

For a hypotherical UoM, the number of losses in two non-overlapping datasets is 24 and 32 respectively. The Pareto tail parameters for the two datasets calculated using the maximum likelihood estimation method are 2 and 3 . What is an estimate of the tail parameter of the combined dataset?A ....

The Options Theoretic approach to calculating economic capital considers the value of capital as being equivalent to a call option with a strike price equal to:A . The notional value ofthe debtB . The market value of the debtC . The value of the firmD . The value of the...

Which loss event type is the loss of personally identifiableclient information classified as under the Basel II framework?A . Technology riskB . Clients, products and business practicesC . Information securityD . External fraudView AnswerAnswer: B Explanation: Choice 'b' is the correct answer. All other answers areincorrect. Refer to the detailed...

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 skewnessA . I, II and IVB . III and IVC...

CreditRisk+, the actuarial model for calculating portfolio credit risk, is based upon:A . the exponential distributionB . the normal distributionC . the Poisson distributionD . the log-normal distributionView AnswerAnswer: C Explanation: CreditRisk+ treats default as a binary event, ignoring downgrade risk, capital structures of individual firms in the portfolio or...

If the marginal probabilities of default for a corporate bond for years 1, 2 and 3 are 2%, 3% and 4% respectively, what is the cumulative probability of default at the end of year 3?A . 8.74%B . 9.58%C . 9.00%D . 91.26%View AnswerAnswer: A Explanation: Marginal probabilities of default...

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...

Which of the following is not a credit event under ISDA definitions?A . RestructuringB . Obligation accelerationsC . Rating downgradeD . Failure to payView AnswerAnswer: C Explanation: According to ISDA, a credit event is an event linked to the deteriorating credit worthiness of an underlying reference entity in a credit...

Which of the following credit risk models relies upon theanalysis of credit rating migrations to assess credit risk?A . KMV's EDF based approachB . The CreditMetrics approachC . The actuarial approachD . The contingent claims approachView AnswerAnswer: B Explanation: The correct answer is Choice 'b'. The following is a brief...