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LOS m: Demonstrate the use of VAR and stress testing in setting capital requirements.
Q1. Which of the following most accurately describes the relationship between computing internal capital requirements using a stress testing approach versus a value at risk (VAR) capital strength approach? Stress testing approaches:
A) are substitutes for VAR approaches since they better measure the entire spectrum of potential outcomes.
B) complement VAR approaches since they account for scenarios that may not be properly considered in VAR approaches.
C) can never be combined with VAR approaches because they are based on different probability distributions.
Q2. Stress testing approaches are not constrained by many of the constraints associated with the traditional distribution based value at risk (VAR) approaches. Which of the following is an example of a constraint associated with the traditional VAR approach but NOT the stress testing approach? The traditional VAR approach:
A) places too high a probability on extreme events.
B) ignores extreme events.
C) places too small a probability on extreme events.
Q3. Which of the following describes the best way to resolve the differences between the stress testing approach to computing capital requirements and the value at risk (VAR) approach?
A) Ignore the VAR approach since it ignores extreme events.
B) Integrate the two approaches by using an optimization algorithm.
C) Use both approaches and then use the larger of the two capital requirements. | 
发表于 2009-4-7 18:57
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