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5. John Diamond is evaluating the existing risk management system of Rome Asset Management and identified the following two risks. Rome Asset Management's derivative pricing
5. John Diamond is evaluating the existing risk management system of Rome Asset Management and identified the following two risks. Rome Asset Management's derivative pricing model consistently undervalues call options Swaps with counterparties exceed counterparty credit limit These two risks are most likely to be classified as: A. Market Risk B. Credit Risk C. Operational Risk D. Liquidity Risk 6. You are the risk manager of a fund. You are using the historical method to estimate VaR. You find that the worst 10 daily returns for the fund over the period of last 100 trading days are-1.0%,-3%,-0.6%,-0.2%,-2.7%,-1.0%,-29%, 0.1%, -1.1%,-30%, what is the daily VaR for the portfolio at the 95% confidence level? A.-29% B.-1.1% C.-10% D.-3.0% 7. Assume that portfolio daily returns are independently and identically normally distributed. Sam Neil, a new quantitative analyst, has been asked by the portfolio manager to calculate the portfolio Value-at-Risk (VaR) measure for 10, 15, 20 and 25 day periods. The portfolio manager notices something amiss with Sam's cal- culations displayed below. Which one of following VARs on this portfolio is inconsistent with the others? A. VAR(10-day)- USD 316M B. VAR(15-day)- USD 465M C. VAR(20-day) - USD 537M D. VAR(25-day) = USD 600M 8. is used to measure credit risk in CreditMetrics system. A. Covariance matrix B. Credit scoring C. Credit transition matrix D. Monte Carlo simulation 9. Generally, financial risks are classified into broad categories of A. market risk B. credit risk C. liquidity risk D. o operational risk
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