Chapter 20 Value at Risk

1) Which of the following is true of the 99.9% value at risk?

A) There is 1 chance in 10 that the loss will be greater than the value of risk

B) There is 1 chance in 100 that the loss will be greater than the value of risk

C) There is 1 chance in 1000 that the loss will be greater than the value of risk

D) None of the above

2) The gain from a project is equally likely to have any value between -$0.15 million and +$0.85 million. What is the 99% value at risk?

A) $0.145 million

B) $0.14 million

C) $0.13 million

D) $0.10 million

3) The gain from a project is equally likely to have any value between -$0.15 million and +$0.85 million. What is the 99% expected shortfall?

A) $0.145 million

B) $0.14 million

C) $0.13 million

D) $0.10 million

4) Which of the following is true of the historical simulation method for calculating VaR?

A) It fits historical data on the behavior of variables to a normal distribution

B) It fits historical data on the behavior of variables to a lognormal distribution

C) It assumes that what will happen in the future is a random sample from what has happened in the past

D) It uses Monte Carlo simulation to create random future scenarios

5) At the end of Thursday, the estimated volatility of asset A is 2% per day. During Friday asset A produces a return of 3%. An EWMA model with lambda equal to 0.9 is used. What is an estimate of the volatility of asset A at the end of Friday?

A) 2.08%

B) 2.10%

C) 2.12%

D) 2.14%

6) At the end of Thursday, the estimated volatility of asset B is 1% per day. During Friday asset B produces a return of zero. An EWMA model with lambda equal to 0.9 is used. What is an estimate of the volatility of asset A at the end of Friday?

A) 0.98%

B) 0.95%

C) 0.92%

D) 0.90%

7) At the end of Thursday, the estimated covariance between assets A and B is 0.0001. During Friday asset A produces a return of 3% and asset B produces a return of zero. An EWMA model with lambda equal to 0.9 is used. What is an estimate of the covariance at the end of Friday?

A) 0.000090

B) 0.000081

C) 0.000100

D) 0.000095