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.

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.