aianjie

 

2、Which of the following is a property of a coherent risk metric?

A) Sub-Additive.

B) Sub-Monotonic.

C) Positive Heterogeneous.

D) All of these.

aianjie

 

The correct answer is A

Only Sub-Additive is a coherent risk metric.

aianjie

 

The correct answer is B

The principal shortcoming of VAR is that it does not consider losses beyond a specified threshold.

aianjie

 

AIM 5: Discuss the coherence property of risk measures.

1、Which of the following are properties of a Coherent risk metric?

A) Positive homogeneous.

B) All of these.

C) Monotonicity.

D) Sub-additivity.

aianjie

 

The correct answer is B

Gumbel, Weibull, and Frechet are common results. EVT allows for analysis of maxima and minima. EVT allows for “heavy” tails as we see in the market place. EVT is not dependent upon the normal distribution.

 

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AIM 4: Calculate the peaks over threshold.

1、The Peaks Over Threshold (POT) approach serves as a basis for an expanded model of risk estimation. Which of the following statements are false regarding POT?

I. Under the POT method, in the case of “fat” tails, not all moments are defined.

II. POT is often estimated with a Generalized Pareto Distribution.

A) Both I and II.

B) Neither I nor II.

C) I only.

D) II only.

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The correct answer is B

Both statements are correct (i.e., neither are false).

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2、Which of the following is TRUE comparing VAR and extreme value theory (EVT)?

A) VAR and EVT assume normality of the return distribution.

B) Only EVT considers losses beyond a specified threshold.

C) The generalized Pareto distribution is fully parameterized by the mean and variance.

D) EVT focuses exclusively on the upper half of the return distribution.

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The correct answer is D

Small tails decrease the number of extreme observations increasing the variance. Block maxima and peaks-over-threshold are the two classes of EVT distributions.

 

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10、Extreme value theory (EVT) can assist with value-at-risk (VAR) calculations by providing better probability estimates of observing extreme losses than that indicated by a standard normal distribution because:

A) the observed empirical distribution of most asset returns tends to be platykurtic.

B) extreme losses appear to occur less frequently than indicated by a normal distribution.

C) extreme losses appear to occur more frequently than indicated by a normal distribution.

D) EVT is the most efficient method for estimating extreme losses.