Golub (ed.), BlackRock’s Guide to Fixed-Income Risk Management practice questions review the following learning objectives:
Chapter 5. Market-Driven Scenarios: An Approach for Plausible Scenario Construction
Describe and evaluate the market-driven scenario (MDS) approach used to develop scenarios for stress testing investment portfolios.
Describe the scenario z-score, the volatility z-score, the correlation z-score, and the Mahalanobis distance, and explain how these are used in estimating the likelihood of occurrence and magnitude of scenarios.
Explain steps in the process of defining and developing market-driven scenarios, and describe the application of the MDS approach in the example provided.
Describe challenges and considerations that may arise when implementing the market-driven scenario approach.
Chapter 7. Liquidity Risk Management
Explain best practices for managing liquidity risk in an investment fund.
Explain potential challenges fund managers face when managing liquidity risk in fixed-income portfolios, including challenges related to data modeling.
Describe and apply different approaches to model asset liquidity, including an approach to modeling infrequently traded bonds and the t-cost model to calculate transaction costs for corporate bonds.
Identify examples of extraordinary measures that regulators may allow funds to take to meet unanticipated redemption requests, and explain when each measure may be allowed.
Explain approaches to manage and model redemption risk in an investment fund, including the redemption waterfall, approaches to model a fund’s level of redemption-at-risk, and approaches to optimize liquidity to meet redemption requests.
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