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Hull OFOD10e MultipleChoice Questions Only Ch22
Hull OFOD10e MultipleChoice Questions Only Ch22
2. The gain from a project is equally likely to have any value between -$0.15 million and +$0.85
million. What is the 99% value at risk?
A. $0.145 million
B. $0.14 million
C. $0.13 million
D. $0.10 million
3. The gain from a project is equally likely to have any value between −$0.15 million and +$0.85
million. What is the 99% expected shortfall?
A. $0.145 million
B. $0.14 million
C. $0.13 million
D. $0.10 million
4. Which of the following is true of the historical simulation method for calculating VaR?
A. It fits historical data on the behavior of variables to a normal distribution
B. It fits historical data on the behavior of variables to a lognormal distribution
C. It assumes that what will happen in the future is a random sample from what has
happened in the past
D. It uses Monte Carlo simulation to create random future scenarios
6. 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
7. 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? Assume that returns are multivariate normal (Note that N(-2.326)=0.01)
A. $177
B. $135
C. $215
D. $331
8. What is the method of testing how often a VaR with a certain confidence level was exceeded in
the past called?
A. Stress testing
B. Back testing
C. EWMA
D. The model-building approach
9. Which of the following is true when delta, but not gamma, is used in calculating VaR for option
positions?
A. VaR for a long call is too low and VaR for a long put is too low
B. VaR for a long call is too low and VaR for a long put is too high
C. VaR for a long call is too high and VaR for a long put is too low
D. VaR for a long call is too high and VaR for a long put is too high
15. Consider a position in options on a particular stock. The position has a delta of 12 and the stock
price is 10. Which of the following is the approximate relation between the change in the
portfolio value in one day, dP, and the return on the stock during the day, dx
A. dP=12dx
B. dP=1.2dx
C. dP=120dx
D. dP=22dx
16. A position in options on a particular stock has a delta of zero and a gamma of 4. The stock price
is 10. Which of the following is the approximate relation between the change in the portfolio
value in one day, dP, and the return on the stock, dx
A. dP = 4 times the square of dx
B. dP = 2 times the square of dx
C. dP = 20 times the square of dx
D. dP = 200 times the square of dx
17. In a principal components analysis which of the following is the quantity of a particular factor in
an observation
A. Factor loading
B. Factor score
C. Factor size
D. Factor rating
18. In the case of interest rate movements the most important factor corresponds to
A. A parallel shift
B. A slope change
C. A bowing
D. An increase in short rates
19. In the case of interest rate movements the second most important factor corresponds to
A. A parallel shift
B. A slope change
C. A bowing
D. An increase in short rates
20. Which of the following is true
A. Expected shortfall is always less than VaR
B. Expected shortfall is always greater than VaR
C. Expected shortfall is sometimes greater than VaR and sometimes less than VaR
D. Expected shortfall is a measure of liquidity risk wheras VaR is a measure of market risk