qingshu

 

The correct answer is A

The factor correlations are not addressed in the approach. Not including correlations could reduce the ability to capture outcomes associated with fat-tailed distributions. The other three possible answers are incorrect in that CreditRisk+ uses an actuarial approach and the Poisson distribution, and it most readily applies to buy-and-hold strategies.

qingshu

 

AIM 7: Define expected loss, unexpected loss, value at risk, economic capital, and expected shortfall.

1、An unexpected loss is defined as:

A) the standard deviation of portfolio losses. 

B) the product of the exposure, the probability of default, and the loss given default.

C) the amount of capital needed as a buffer to avoid insolvency.

D) the average or expected value of all losses greater than the VAR. 

qingshu

 

The correct answer is A

Unexpected loss is defined as the standard deviation of portfolio losses. Expected loss is the product of the exposure, the probability of default, and the loss given default. Economic capital is the amount of capital needed as a buffer to avoid insolvency, and expected shortfall is the average or expected value of all losses greater than the VAR

qingshu

 

2、The measure known as “unexpected loss” is best described as:

A) the average of losses greater than VAR.

B) None of the above.

C) the average of losses less than VAR.

D) the confidence level of VAR.

qingshu

 

The correct answer is B

Unexpected loss is the standard deviation of portfolio losses. It does not directly relate to VAR.

qingshu

 

3、Subtracting the expected loss from VAR gives the measure known as:

A) unexpected loss.

B) economic capital.

C) expected shortfall.

D) hazard rate.

qingshu

 

The correct answer is B

Economic capital = VAR – E(LP). It is an amount of capital needed as a buffer to avoid insolvency.

qingshu

 

4、Assume a portfolio consists of two loans of $1,000 with a correlation between loans of 0. Also, assume the only two outcomes for each loan with equal probability are a loan loss of $8 or $12. Note that the average loss for each position is $10 and the expected loss on the portfolio is $20. Find ULp, the unexpected loss of the portfolio.

A) $2.83.

B) $0.71.

C) $8.00.

D) $10.00.

qingshu

 

The correct answer is A

E(Li) = $10, E(Lp) = $20,

ULp = ((0.25)(16 ? 20)2 + (0.5)(20 ? 20)2 + (0.25)(24 ? 20)2)0.5 = $2.828.

qingshu

 

5、The expected loss given that the loss has exceeded the VAR is best described as the

A) expected shortfall.

B) unexpected loss.

C) economic capital.

D) Poisson parameter.