|
LOS g: Discuss the advantages and limitations of VAR and its extensions, including cash flow at risk, earnings at risk, and tail value at risk. ffice ffice" />
Q1. Value at risk (VAR) is attractive because it:
A) all of these choices are correct.
B) has a well-defined method for calculation.
C) is a single and easily understood measure.
Correct answer is C)
VAR is an easily understood measure, but there are many ways to compute it. It is not a measure of the most that can be lost.
Q2. Which of the following is NOT a practical benefit of the value at risk framework?
A) Comparability across asset classes.
B) Identification of risk factors.
C) Hedging.
Correct answer is C)
While value at risk may indicate risks that need to be hedged, it is not a hedging tool as such.
Q3. As a risk measurement, value at risk may be superior to standard deviation because:
A) the statistical properties of VAR are more widely understood.
B) VAR may capture market participant's attitudes towards risk more completely.
C) most market participants calculate VAR in the same manner.
Correct answer is B)
VAR, which measures downside risk, more completely captures the attitudes of many market participants towards risk.
Q4. With respect to value at risk (VAR), regulatory agencies:
A) have mandatory requirements in all financial industries.
B) in some industries require its computation and reporting.
C) are studying it, but none have adopted its use.
Correct answer is B)
The regulation in some industries address VAR, but many do not.
Q5. Which of the following is NOT an appropriate application of VAR for portfolio managers?
A) Peer group risk evaluation.
B) Setting portfolio risk limits.
C) Identification of key portfolio risks.
Correct answer is A)
Value at risk (VAR) is useful to compare performance of different business units with different asset classes and risk characteristics because VAR is interpreted the same regardless of the assets in question. VAR can be used in risk budgeting where upper management allocates VAR across the different business units and the goal is to maximize return for the allocated VAR. Comparing managers based on return for a given level of risk utilizes the Sharpe ratio and not VAR.
Q6. Regarding the practical application of value at risk (VAR) for portfolio managers, which of the following statements is FALSE? VAR can:
A) be used to set risk limits on an absolute level.
B) not be used to set risk limits relative to a benchmark.
C) be used to identify the macroeconomic factors that have the greatest impact on overall portfolio performance. Correct answer is B)
VAR can be used to set risk limits for a portfolio – either on an absolute level or on a relative basis versus a benchmark.
Q7. Which of the following statements describes the most unique and practical application of value at risk (VAR) for comparing risky assets? VAR can be used to compare risk:
A) across bond market sectors.
B) across asset classes such as bonds and stocks.
C) between different style equity portfolios.
Correct answer is B)
VAR measures risk comparably across asset classes. Thus, the risk of a bond portfolio can be compared to that of an equity portfolio. This type of comparison is not very meaningful using other risk measures.
Q8. An investor hires a portfolio manager and stipulates a maximum value at risk for the portfolio. This is an example of the use of the value at risk framework to:
A) set risk limits.
B) measure performance.
C) build portfolios.
Correct answer is A)
The investor has used the value at risk framework to set risk limits for the portfolio.
Q9. The accuracy of a value at risk (VAR) measure:
A) is included in the statistic.
B) is one minus the probability level.
C) can only be ascertained after the fact.
Correct answer is C)
This is a weakness of VAR. The reliability can only be known after some time has passed to see if the number and size of the losses is congruent with the VAR measure.
| 
发表于 2009-4-7 18:40
| 