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

 

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.

aianjie

 

AIM 3: Describe Portfolio Manager and its similarity to CreditMetrics.

1、Portfolio Manager and CreditMetrics:

A) use the same number of factors.

B) are different in that Portfolio Manager uses fewer factors than CreditMetrics.

C) are different in that Portfolio Manager uses more factors than CreditMetrics.

D) do not use a factor approach.

aianjie

 

The correct answer is B

Portfolio Manager has only one factor, while CreditMetrics has several factors.

aianjie

 

2、Which of the following statements, with respect to KMV’s Portfolio Manager and its similarity to CreditMetrics, is the most correct?

A) They are both based on multivariate distributions.

B) They are both based on one factor.

C) They both only focus on defaults.

D) They are very different, and have very little in common.

aianjie

 

The correct answer is A

CreditMetrics is a ratings-based model. It uses probabilities from transition matrices that show the probability of an asset having its rating changed.

aianjie

 

3、With respect to computing loss given default, CreditMetrics:

A) uses simulations from the beta distribution.

B) uses a linear factor model.

C) is useless.

D) None of the above.

aianjie

 

The correct answer is A

For loss given default, the CreditMetrics uses simulations from the beta distribution. Each industry has a beta distribution calibrated to describe the recovery rates for defaults in that industry. Using the specific beta distribution associated with the position’s industry, CreditMetrics draws random recovery rates and assigns the values to the defaulted positions.