Chapter 20 Value at Risk

8) Which of the following is a definition of the covariance between X and Y?

A) Correlation between X and Y times variance of X times variance of Y

B) Variance of X times the variance of Y

C) Correlation between X and Y divided by the product of the standard deviation of X and the standard deviation of Y

D) Correlation between X and Y times standard deviation of X times standard deviation of Y

9) Which of the following is true of a covariance matrix?

A) The numbers on the diagonal are variances

B) The numbers on the diagonal are standard deviations

C) The numbers on the diagonal are all one

D) The numbers on the diagonal are all zero

10) What does EWMA stand for?

A) Equally weighted moving average

B) Equally weighted median approximation

C) Exponentially weighted moving average

D) Exponentially weighted median average

11) Which of the following is true when lambda equals 0.95?

A) The weight given to the most recent observation is 0.95

B) The weight given to the observation one day ago is 95% of the weight given to the observation two days ago

C) The weights given to observations add up to 0.95

D) The weights given to the observation two days ago is 95% of the weight given to the observation one day ago

12) The 10-day VaR is often assumed to be which of the following?

A) The 1-day VaR multiplied by 10

B) The 1-day VaR multiplied by the square root of 10

C) The 1-day VaR divided by 10

D) The 1-day VaR divided by the square root of 10

13) Which was the minimum capital requirement for market risk in the 1996 BIS Amendment?

A) At least 3 times the 10-day VaR with a 99% confidence level

B) At least 3 times 7-day VaR with a 97% confidence level

C) At least 2 times 5-day VaR with a 95% confidence level

D) 1-day VaR with a 99% confidence level

14) An investor has $2,000 invested in stock A and $5,000 in stock B. The daily volatilities of A and B are 1.5% and 1% respectively and the coefficient of correlation is 0.8. What is the one day 99% VaR? (Note that N(-2.33)=0.01)

A) $177

B) $135

C) $215

D) $331