qingshu

 

The correct answer is A

KMV's Portfolio Manager and CreditMetrics are very similar. They are both based on multivariate distribution. However, Portfolio Manager is unique in that it only has one factor, and it focuses on default losses.

qingshu

 

AIM 4: List the improvements and novelties that apply to the Portfolio Risk Tracker.

rtfolio Risk Tracker is:

A) not dynamic at all.

B) dynamic but less dynamic than CreditMetrics.

C) more dynamic than CreditMetrics.

D) equally dynamic as CreditMetrics.

qingshu

 

The correct answer is C

Portfolio Risk Tracker allows for a dynamic analysis over multiple horizons, and this is the nature of the improvements and novelties it has over CreditMetrics and other “static” risk models. For a given horizon of, say, four years, Portfolio Risk Tracker will simulate risk factors for the end of each of the four years.

qingshu

 

AIM 5: Explain how CreditPortfolioView models default risk.

1、CreditPortfolioView models the transition matrices using:

A) agency ratings in an econometric model.

B) macroeconomic or economic cycle data in an econometric model.

C) agency ratings in a Poisson model.

D) macroeconomic or economic cycle data in a beta distribution model.

qingshu

 

The correct answer is B

CreditPortfolioView models the transition matrices using macroeconomic or economic cycle data, and this is its primary distinguishing feature. Macroeconomic variables are the key drivers of default rates, and the CreditPortfolioView estimates an econometric model for an index that drives the default rates of an industrial sector.

qingshu

 

2、CreditPortfolioView uses its model to simulate:

A) default rates, which are then transformed into index values.

B) neither index values nor default rates.

C) default rates only, and indices do not play a role in the process.

D) index values, which are then transformed into default rates.

qingshu

 

The correct answer is D

The procedure can be summarized in four steps: 1) measuring the autoregressive process of the macroeconomic variables, 2) composing sector indices with the variables, 3) estimating a default rate based upon the value of that index, and 4) comparing the simulated values to historical values to determine the transition matrix to use.

qingshu

 

AIM 6: Explain CreditRisk+ and its weaknesses.

1、With respect to CreditRisk+, which of the following is FALSE?

A) CreditRisk+ works well with data that have fat-tails.

B) CreditRisk+ only focuses on default events and ignores prices, spreads and credit migrations.

C) Factor correlations are not addressed with the CreditRisk+ model.

D) CreditRisk+ may not be appropriate for use with portfolios that do not use a buy-and-hold strategy.

qingshu

 

The correct answer is A

CreditRisk+ only focuses on default events and ignores prices, spreads and credit migrations. In addition, factor correlations are not addressed with the CreditRisk+ model and it may not be appropriate for use with portfolios that do not use a buy-and-hold strategy. Because the model does not consider factor correlations it may not capture events associated with fat-tailed distributions.

qingshu

 

2、A weakness of CreditRisk+ is that it:

A) does not address factor correlations.

B) ignores actuarial data.

C) cannot be used for buy-and-hold strategies.

D) does not use the Poisson distribution.