37: Measuring & Managing Market Risk

Question 1

VaR is the:

Answer 1

minimuim loss, for a given probability

Question 2

One assumption of VaR is normal distribution, which means that portfolios containing ____, is not applicable

Answer 2

options have non normal distributions

Question 3

Conditional VaR is the estimated loss under the condition that VaR…

Expected tail loss/expected shortfall

Answer 3

VaR has been exceeded

How much can I expect to lose if VaR is exceeded?

Question 4

VaR

Lower probability of loss=

Answer 4

Higher minimuim loss

Question 5

Reverse Stress Testing, a form of scenario analysis, is designed to identify scenarios that:

Answer 5

result in a business failure

Question 6

Incremental VaR is the estimated change in the VaR from a specific change in:

Answer 6

change in the size of a portfolio position, relative to the other positions

Question 7

Marginal VaR is the anticipated change in VaR for a _ change in a portfolio position, and is used as an estimate of the position’s…

Answer 7

the estimate of the change in VaR for a small change in a portfolio position
…used as an estimate of the each asset’s contribution to overall VaR

Question 8

Ex Ante tracking error, Relative VaR, is a measure of the degree to which the performance of a given investment portfolio:

Answer 8

deviates from its benchmark

Question 9

VaR is reliable, and can be verified through:

Answer 9

backtesting

Question 10

VaR has a failure to take into account:

Answer 10

liquidity;
if some assets in portfolio are relatively illquid, VaR could be understated