Question 1

All of the following items are generally considered advantages of non-parametric estimation methods except:

Options :

A : ability to accommodate skewed data.

B : availability of data.

C : little or no reliance on covariance matrices.

D : use of historical data.

Answer: D

Question 2

Due to lack of available investment opportunities in public markets, a pension fund decided to hire an investment consultant to assess the potential for investing in illiquid markets in the US. Which of the following characteristics of illiquid markets in the US should the consultant present to the pension managers?

Options :

A : During the 2008-2009 Financial Crisis, liquidity dried up in repo markets but not in commercial paper markets.

B : The traditional public, liquid markets of stocks and bonds are larger than the total wealth held in illiquid assets.

C : The share of illiquid assets in institutional portfolios has generally gone up in the past 2 decades.

D : Municipal bonds are usually more liquid than pinksheet over-the-counter equities.

Answer: C

Question 3

Unconditional testing does not reflect the:

Options :

A : timing of the exceptions.

B : size of the portfolio.

C : number of exceptions.

D : confidence level chosen.

Answer: A

Question 4

Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?

Options :

A : FRTB requires the calculation of expected shortfall with a 97.5% confidence level.

B : Both Basel I and Basel II.5 require calculation of VaR with a 99% confidence level.

C : FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.

D : The 10-day time horizon for market risk capital proposed under Basel I incorporates a recent period of time, which typically ranges from one to four years.

Answer: C

Question 5

A significant challenge in estimating the legal loss module of an operational risk stress test is that:

Options :

A : there is a lag between the macroeconomic event itself and the incurrence of legal losses.

B : banks are minimally impacted by legal losses.

C : future litigation cases cannot be estimated.

D : operational risks and legal losses cannot be separated.

Answer: A