Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 22: Value at Risk Multiple Choice Test ank: !uestions 1. Which Which of the follow following ing is true true of the the 99.9% value value at at risk? A. There is 1 chance in in 10 that that the loss will be greater than the value value of risk B. There is 1 chance in in 100 that that the loss loss will be be greater greater than the value of risk C. There is 1 chance in in 1000 that that the loss loss will be be greater greater than the the value of risk D. one one of of the the above above !. The gain fro" a #ro$ect is euall& euall& likel& likel& to have an& value between between '(0.1) "illion an* +(0.,) "illion. What is the 99% value at risk? A. (0 (0.1 .1-) -) "ill "illio ion n B. (0 (0.1 .1- "ill "illio ion n C. (0 (0.1 .1 "ill "illio ion n D. (0 (0.1 .10 0 "il "illi lion on . The gain fro" a #ro$ect is euall& euall& likel& likel& to have an& value between between /(0.1) "illion an* +(0.,) "illion. What is the 99% e#ecte* shortfall? A. (0 (0.1 .1-) -) "ill "illio ion n B. (0 (0.1 .1- "ill "illio ion n C. (0 (0.1 .1 "ill "illio ion n D. (0 (0.1 .10 0 "il "illi lion on -. Which of of the following is true of the historical historical si"ulation si"ulation "etho* for calculating a2? A. 3t 4ts historical historical *ata on the behavior behavior of variables to a nor"al nor"al *istribution B. 3t 4ts historical historical *ata on the behavior behavior of variables to a lognor"al lognor"al *istribution C. 3t assu"es that what will ha##en ha##en in the future is a ran*o" ran*o" sa"#le fro" what has ha##ene* in the #ast D. 3t uses 5onte 5onte Carlo si"ulation to to create create ran*o" future future scenarios scenarios ). The 10'*a& 10'*a& a2 a2 is often often assu"e* assu"e* to be which which of the follow following ing A. The 1'*a& 1'*a& a2 "ulti# "ulti#lie* lie* b& 10 B. The 1'*a& 1'*a& a2 a2 "ulti#lie "ulti#lie* * b& the suare suare root root of10 C. The 1'*a& a2 *ivi* *ivi*e* e* b& b& 10 D. The 1'*a& a2 a2 *ivi*e* b& the suare suare root root of 10 6. Which was the "ini"u" ca#ital reuire"ent reuire"ent for "arket "arket risk in the 1996 B37 B37 A"en*"ent? A. At least least ti"es the 10'*a& 10'*a& a2 a2 with a 99% con4* con4*ence ence level level B. At least least ti"es 8'*a& 8'*a& a2 a2 with a 98% con4* con4*ence ence level level C. At least least ! ti"es )'*a& )'*a& a2 a2 with a 9)% con4* con4*ence ence level level D. 1'*a& a2 a2 with a 99% 99% con4*enc con4*ence e level
8. An investor has (!000 investe* in stock A an* ()000 in stock B. The *ail& volatilities of A an* B are 1.)% an* 1% res#ectivel& an* the coe:cient of correlation is 0.,. What is the one *a& 99% a2? Assu"e that returns are "ultivariate nor"al ;ote that ;'!.!6<=0.01< A. (188 B. (1) C. (!1) D. (1 ,. What is the "etho* of testing how often a a2 with a certain con4*ence level was ecee*e* in the #ast calle*? A. 7tress testing B. Back testing C. >W5A D. The "o*el'buil*ing a##roach 9. Which of the following is true when *elta but not ga""a is use* in calculating a2 for o#tion #ositions? A. a2 for a long call is too low an* a2 for a long #ut is too low B. a2 for a long call is too low an* a2 for a long #ut is too high C. a2 for a long call is too high an* a2 for a long #ut is too low D. a2 for a long call is too high an* a2 for a long #ut is too high 10.Which of the following is true? A. The ua*ratic "o*el a##roi"ates *ail& changes in using *elta an* ga""a B. The ua*ratic "o*el a##roi"ates *ail& changes using *elta but not ga""a C. The ua*ratic "o*el a##roi"ates *ail& changes using ga""a but not *elta D. one of the above 11.Which of the following is true? A. Cash ow "a##ing is a wa& of calculating the #resent value of cash ows B. Cash ow "a##ing is use* to han*le interest rate e#osures in the "o*el buil*ing a##roach C. Cash ow "a##ing is use* to han*le interest rate e#osures in the historical si"ulation a##roach D. one of the above 1!.Which of the following *escribes stresse* a2? A. 3t is base* on "ove"ents in "arket variables in stresse* "arket con*itions B. 3t is a2 with a ver& high con4*ence level C. 3t is a2 "ulti#lie* b& a factor of
D. one of the above
1.A @er"an bank has e#osure to the 7)00. Which of the following is true A. The 7 )00 in*e shoul* be alwa&s be "easure* in .7. *ollars when a2 is calculate* B. The 7 )00 in*e shoul* be alwa&s be "easure* in euros when a2 is calculate* C. >ither A or B can be *one D. The 7 )00 in*e shoul* be "easure* in euros onl& if the bank has not got a .7. subsi*iar&. 1-.Which of the following is true of a covariance "atri? A. The nu"bers on the *iagonal are variances B. The nu"bers on the *iagonal are stan*ar* *eviations C. The nu"bers on the *iagonal are all one. D. The nu"bers on the *iagonal are all ero 1).Consi*er a #osition in o#tions on a #articular stock. The #osition has a *elta of 1! an* the stock #rice is 10. Which of the following is the a##roi"ate relation between the change in the #ortfolio value in one *a& * an* the return on the stock *uring the *a& * A. *=1!* B. *=1.!* C. *=1!0* D. *=!!* 16.A #osition in o#tions on a #articular stock has a *elta of ero an* a ga""a of -. The stock #rice is 10. Which of the following is the a##roi"ate relation between the change in the #ortfolio value in one *a& * an* the return on the stock * A. * = - ti"es the suare of * B. * = ! ti"es the suare of * C. * = !0 ti"es the suare of * D. * = !00 ti"es the suare of * 18.3n a #rinci#al co"#onents anal&sis which of the following is the uantit& of a #articular factor in an observation A. Eactor loa*ing B. Eactor score C. Eactor sie D. Eactor rating AnswerF B
1,.3n the to A. B. C. D.
case of interest rate "ove"ents the "ost i"#ortant factor corres#on*s A #arallel shift A slo#e change A bowing An increase in short rates
19.3n the case of interest rate "ove"ents the secon* "ost i"#ortant factor corres#on*s to A. A #arallel shift B. A slo#e change C. A bowing D. An increase in short rates !0.Which of the following is true A. >#ecte* shortfall is alwa&s less than a2 B. >#ecte* shortfall is alwa&s greater than a2 C. >#ecte* shortfall is so"eti"es greater than a2 an* so"eti"es less than a2 D. >#ecte* shortfall is a "easure of liui*it& risk wheras a2 is a "easure of "arket risk
