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ROC is used to determine the model accuracy instead of being used to predict the default possibility. Therefore, ROC must be ruled out. We have discussion on whether the question is asking to determine VaR limit or the portfolio amount and cannot reach a consensus on the question details...

i faced the same problem as well and was doubting if the none of the answers was correct because i obtained: 1- e ^ (-0.042*2/0.6) = 13.05% However, the answer provided in the question was 13.5% and the rests were much lower than this percentage.... Either GARP made a typo or I worked in a...

1. VaR = 37k 2. Ask = 30.25 3. Bid = 29.75 4. Current price = 30 5. number of shares = 50000 Use constant spread approach LVaR = 37000+0.5*50000*30*0.5/30 =49500

CVA aims at minimizing the number of counterparty in order to maximize the netting benefit. In contrast, credit limit aims at maximizing the number of counterparty FVA is related to funding cost adjustment. It is controversial for traders to account for the funding value adjustment in their P&L...

I guess you are talking about using either CDS spread or bond yield to derive risk neutral probability Subject to availability bias...:), i chose CDS isolates default risk premium Payment netting will reduce the settlement risk and closeout netting will reduce pre settlement risk that is the...

Information given in the question A. 800 million loan with 2.5% interest cost B. Operating expense = 14million C. Economic Capital of 100million with 3.5% return D. Expected loss = 6 million E. Revenue = 50 million F. The analyst calcuates the RAROC correctly at 13.5% currently * Ignore...

The question includes the following information A. 33 exceptions in 95% VaR B. 11 exceptions in 99% VaR C. Sample = 1000 days Critical value of 95% VaR = (33-1000*0.05)/sq root(1000*0.95*0.05) = -2.46 Critical value of 99% VaR = (11-1000*0.01)/sq root(1000*0.99*0.01) = 0.3178 Critical Value of...

not sure if the order is the same i remember only 1 graph satisfies both conditions and i chose B

For Smirk, choose the graph indicating the market implied volatility distribution has a fatter tail on the left side than the one of lognormal and has a thinner tail on the right side than the lognormal one

Unfortunately don't agree with your answer If you are to allocate $100 million VaR limit among 3 managers with UNCORRELATED portfolios, the VaR Limit on each manager should be Sq root (VaR ^2 + VaR ^ 2 + VaR ^2 ) = 100 VaR Limit on each manager must be < 100

I can only recall the one comparing the credit analysis on consumers, financial institutions, corporate and sovereign.... The answer is consumer since the lending amount to consumer is relatively smaller comparing with the amount to FI and Corporate, the process is automated by using credit...

If the objectives of the question are choosing Trenyor ratio >0.1 AND lowest marginal VaR, you should calculate Trenyor ratio by using index Beta but use Portfolio Beta in finding the lowest marginal VaR If the question refers to minimizing Marginal VaR as long as Trenyor > 0.1 you should find...

i see what you are meaning but the question says AS Long AS so marginal VaR should not be the main objective of the question

the question states that the marginal VaR will be the lowest AS LONG AS Treynor ratio is greater than 0.1 and you have no way out in calculating the marginal VaR by using those inputs provided by the question

This question only asks categorization and action to prevent from happening Even if profit is made, it still needs to be categorized in operational risk database as operational risk gain event Near miss is a scenario losses are made but a bank is able to recover the loss (excluding recoveries...

Operational Risk Gain Event Surely not near miss Near miss is a scenario that a bank has made a loss but is able to recover the loss (excluding the recoveries from insurance) Stop Logic = kill button Regarding the exchange's action, cancel on disconnect, message limit and order limit, i.e...

choose the highest Treynor ratio and use the index Beta

for basic indicator approach, it only cares about the total gross income so even if there is 1 component showing as a negative value, it will still count as long as the total gross income is positive

Longing correlation is to either 1. receive floating rate in a variance swap with the index as an underlying and receive fixed in a variance swap with a stock in that index as an underlying, 2. Buy call option on index and buy call option on an individual component in that index OR 3. receive...