exam august 2015.pdf - lOMoARcPSD|794387 Tentamen 25 Augustus 2015 vragen en antwoorden Risk Management(Erasmus Universiteit Rotterdam StudeerSnel wordt

exam august 2015.pdf - lOMoARcPSD|794387 Tentamen 25...

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StudeerSnel wordt niet gesponsord of ondersteund door een hogeschool of universiteit Tentamen 25 Augustus 2015, vragen en antwoorden Risk Management (Erasmus Universiteit Rotterdam) Gedownload door Tom van den Berk ([email protected]) lOMoARcPSD|794387
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1 Name : ____________________________________________________________ Student number : ____________________________________________________________ Rotterdam School of Management, Erasmus University RSM04FI – Risk Management Personal information student Name: ______________________________________ Student number: ______________________ Written examination General information Date examination: 25/08/2015 Lecturer: D. Bongaerts Time examination: Version: 9:30 till 12:30 Type examination: Closed book Number of questions: 0 MC questions 4 open questions (subdivided into 18 subquestions) Number of pages: 15 pages (incl. cover sheet) Number of supplement: 0 pages Additional information Use the answer sheets provided Please fill in your name and student number on every page There are 18 sub-questions, each carries the same weight Please scan the exam before you start answering the questions Provide sufficient but not excessive explanation to your answers Good Luck! Instructions You are allowed to use a calculator. You are not allowed to use a programmable calculator. You are not allowed to use notes. You are not allowed to use books You are not allowed to use the following books: ……… You are not allowed to use a dictionary. Examination papers, answer forms and scrap paper must be submitted to the supervisor! Fraud: During the exam, supervisors will check for fraudulent behavior. Use of mobile phones, smart phones, (smart) watches or similar electronic equipment is prohibited. These devices must be turned off during exams and put away in a jacket or bag at all times. If the device is on and/or not properly stored, it is considered cheating! If fraud is committed, the Examination Board may advise the Executive Board to permanently terminate the registration of the student (2014-2015 Rules and Guidelines, Article 3.4.). Not registered for the examination (this only applies to MSc exams!): You should be automatically registered for all exams during the academic year. If your name is not on the list, please contact [email protected] to check your registration for this course. Gedownload door Tom van den Berk ([email protected]) lOMoARcPSD|794387
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2 Name : ____________________________________________________________ Student number : ____________________________________________________________ Problem 1: Liquidity risk and bank capital management Liquidity risk has played a central role in the recent financial crisis. Questions a) and b) concern different aspects of this particular risk. Suppose an insurance company has bought respectively 5 million stocks of company A and 2 million stocks of company B. Assume that relative transaction costs follow a normal distribution with mean and (daily) volatility. The following table describes the composition of his/her position and the relevant transaction cost parameters. Size of position (in # of bonds) Mid price In (US$) Average relative bid-ask spread (in %) Daily volatility relative bid-ask spread (in %) Stock A 5 million 45.6 0.08% 0.10% Stock B 2 million 103.2 0.05% 0.06% Answer the following questions: a)Provide two intuitive explanations why market makers charge higher transaction costs (bid-ask spread) for larger transactions than for smaller ones.
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