In response to Coopers statement regarding VARs incomparability across managers, Myers is most likely to: | A) | agree and add that it is because of the complexity of the calculations involved. |
| | B) | disagree and add that the characteristics of a competitor's portfolio can be estimated through VAR modeling techniques. |
| | C) | disagree because calculations do not rely on normal return distributions. |
| D) | agree and add that this is due to its inherent model risk. |
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Answer and Explanation
VAR is relatively incomparable across managers due to its inherent model risk. For example, two people can be given an assignment to compute the VAR for the same underlying asset and the results will likely be different due to the use of different methodologies and model assumptions. Neither answer is necessarily wrong. The bottom line here is that peer group evaluation using VAR is not very useful unless one can be sure that the same VAR techniques and assumptions are used to evaluate all portfolios.
With respect to the use of stress testing in VAR analysis, Burns and Smith are, respectively:
Answer and Explanation
Burns is incorrect and Smith is incorrect. A particular VAR estimate is based on a given model and its parameters. In stress testing (or scenario analysis), the analyst varies the inputs to the VAR estimation process sometimes to the extreme and analyzes the impact of this movement on the computed VAR. Stress testing is "what if" analysis, and its main contribution is that it shows how reliable a particular VAR estimate is.
In response to Myers question about the most fundamental problem associated with estimating VAR, Bishop is most likely to reply that the main problem is: | A) | the lack of available data to compute VAR. |
| | B) | that VAR is difficult to calculate. |
| C) | the inability to accurately derive the "true" probability distribution for the asset or portfolio under evaluation. |
| | D) | that VAR calculations depend on symmetrical payout profiles. |
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Answer and Explanation
The fundamental problem with VAR analysis is that the analyst must estimate the "true" probability distribution for the asset or portfolio under evaluation. This means that in order to give the analyst reliable results, the quantitative model must accurately describe the price process of the asset.
Regarding credit risk and VAR, Banks and Myers are, respectively:
Answer and Explanation
Banks is correct but Myers conclusion is incorrect. Since credit risk increases when the value of the position held increases, we should focus on the upper not lower tail of the distributions of gains on positions held.
McAdams, Blatt and Berry are, respectively: A) | correct; incorrect; incorrect. |
| | B) | correct; correct; incorrect. |
| | C) | incorrect; correct; incorrect. |
| | D) | incorrect; incorrect; incorrect. |
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Answer and Explanation
A key advantage of Monte Carlo simulation is the ability to deal with the assumptions required to handle complex relationships. McAdams statement is correct. The key advantage of the historical method is that you do not have to assume a particular distribution. Therefore, Blatt is incorrect. A major disadvantage of the historical method is that we have to assume that past performance is representative of future performance; it is not a disadvantage of the variance-covariance method. Therefore, Berry is also incorrect. | 
发表于 2008-9-17 17:18
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