Exam 15: Market Risk

Nonstatistical risk measures provide granular information on the firm's market risk exposure by looking at sensitivities to variables like credit spread, interest rate basis point values, and market values.

A disadvantage of the back simulation approach to estimate market risk exposure is the limited confidence level based on the number of observations.

The JPM RiskMetrics model is based on the assumption of a binomial distribution of asset returns.

The Expected Shortfall (ES) is a measure of market risk that estimates the expected losses beyond a given confidence level.

When using the RiskMetrics model, price volatility is calculated as

Sumitomo Bank's risk manager has estimated that the DEARs of two of its major assets in its trading portfolio, foreign exchange and bonds, are -$150,000 and -$250,000, respectively. What is the 10-day VAR of Sumitomo's trading portfolio if the correlation among assets is assumed to be -1.0?

City bank has six-year zero coupon bonds with a total face value of $20 million.The current market yield on the bonds is 10 percent. What is the price volatility if the maximum potential adverse move in yields is estimated at 20 basis points?

Which of the following is a method that may overcome weaknesses in the historic or back simulation model?

Which of the following are included in the methodological approach to calculate the VAR?

MMC Bank has an equity trading portfolio that consists of long positions of 2,750 shares of McDonald's Corp at a price of $97.50; 3,500 shares of Duke Energy at a price of $65.00; and 1,000 share of the Swiss firm USB Bancorp at a price of $47.50.In addition the bank has sold short 1,500 shares of the Japanese technology firm Sony at a price of $32.00 and 750 shares of McDonald's Corp.What is the amount of capital that MMC Bank is required to keep against this portfolio according to the Basel Standardized approach?

The portfolio of a bank that contains assets and liabilities that are relatively illiquid and held for longer holding periods