PRMIA PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition - 8008 Exam Practice Test

Which of the following statements are true:
I. Shocks to risk factors should be relative rather than absolute if we wish to avoid a change in the sign of the risk factor.
II. Interest rate shocks are generally modeled as absolute shocks.
III. Shocks to volatility are generally modeled as absolute shocks.
IV. Shocks to market spreads are generally modeled as relative shocks.

Which of the following correctly describes survivorship bias:

When modeling severity of operational risk losses using extreme value theory (EVT), practitioners often use which of the following distributions to model loss severity:
I. The 'Peaks-over-threshold' (POT) model
II. Generalized Pareto distributions
III. Lognormal mixtures
IV. Generalized hyperbolic distributions

Which loss event type is the failure to timely deliver collateral classified as under the Basel II framework?

A portfolio's 1-day VaR at the 99% confidence level is $250m. What is the annual volatility of the portfolio?
(assuming 250 days in the year)

Under the CreditPortfolio View model of credit risk, the conditional probability of default will be:

For a loan portfolio, expected losses are charged against:

Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial paper carrying a AA credit rating with identical maturity and notional?

The estimate of historical VaR at 99% confidence based on a set of data with 100 observations will end up being:

Which of the following cannot be used to address the issue of heavy tails when modeling market returns

For a bank using the advanced measurement approach to measuring operational risk, which of the following brings the greatest 'model risk' to its estimates:

Monte Carlo simulation based VaR is suitable in which of the following scenarios:
I. When no assumption can be made about the distribution of underlying risk factors II. When underlying risk factors are discontinuous, show heavy tails or are otherwise difficult to model III. When the portfolio consists of a heterogeneous mix of disparate financial instruments with complex correlations and non-linear payoffs IV. A picture of the complete distribution is desired in addition to the VaR estimate

Which of the following techniques is used to generate multivariate normal random numbers that are correlated?

The accuracy of a VaR estimate based on a Monte carlo simulation of portfolio prices is affected by:
I. The shape of the distribution of portfolio values
II. The number simulations carried out
III. The confidence level selected for the VaR estimate