Operational risk questions
1.
How much is the proposed charge on operational risk approximately of the overall capital requirements by the Basle Committee? a) 10% b) 15% c) 12% d) 25% Sol.: c.
2. A definition of operational risk is:
a) All the risks that
Portfolio Models of Credit Risk, Merton Model, and KMV 1. A risk analyst is trying to estimate the Credit VaR for a risky bond. The Credit VaR is defined here as the maximum unexpected loss at a confidence level of 99.9% over a one-month horizon. Assume t
Transition Matrix, Recovery Rates, and Bankgesellschaft Berlin 1. d 2. a Probability of default in year 2: P(D2|A1)P(A1) + P(D2|B1)P(B1) + P(D2|C1)P(C1) =0.00 x 0.91 + 0.02 x 0.07 + 0.18 x 0.02 =0.5%. 3. a 4. b 5. a 6. b 7. a 8. b 9. b 10. a
Credit rating & Credit Lyonnais 1. C. Baa3 is the lowest rating 2. A. The cutoff point for pre-tax interest coverage ratio in the table for industrial financial ratios is 3.7 for BBB credits, which is similar to the ratio of 3.6 for company X. More import
Credit Exposure Questions
1. b, 2. a. 3.
4.c. 5.a. 6. Solution:
7.b. 8. b.
Using the formula to calculate the NPV of the stream of fixed interest cash flows:
9.b. 10.a. 11.b. NPV of Dollar cash flows = $7,572,318 NPV of Swiss Franc cash flows = SwFr 10,53
Solutions: intro VAR and credit risk 1. 4 The institution can be expected to lose at least $1 million in 1 out of next 100 days. There will be loss worse than VaR in, on average, n=1% *100 = 1 day out of 100. 2. 3
3. 4. 5. 6. 7. 8.
3 1,2 1,3,4 1 2 3
9. 10
RAROC, Economic Capital & Basel Accords
1. Consider the following data for a particular sample period:
Calculate the following performance measures for portfolio P and the market: Sharpe, Jensen (alpha), Treynor and Appraisal ratio. The T-bill rate during