nayizhenfeng

 

2、Which sector concentration risk measurement model introduced an infection parameter allowing credit risk correlation across exposures?

A) BET.  

B) Duellmann. 

C) Garcia Cespedes et al.  

D) Pykhtin.

nayizhenfeng

 

The correct answer is B

 

Duellmann extends BET by allowing credit risk to be correlated across exposures measured by a third parameter, the ‘infection’ probability between exposures. This violates the IRB model condition of portfolio invariance.

nayizhenfeng

 

3、Gordy and Lütkebohmert find that extending the cut-off point of exposures:

      I. creates a small change in the granularity adjustment.

     II. decreases the estimates of systematic risk.

    III. increases the bank’s exposure to credit losses.

    IV. reduces required capital.

A) I only.  

B) I and III.

C) II and III.  

D) I and IV.

nayizhenfeng

 

The correct answer is D

 

Gordy and Lütkebohmert suggest that extending the ‘cut-off’ point of exposures creates a small change in the granularity adjustment and reduces required capital.

nayizhenfeng

 

The correct answer is B

 

Sector concentration risk represents an exposure to an industry or geography creating additional systematic risk factors.

nayizhenfeng

 

AIM 8: Explain the granularity adjustment in Gordy and Lütkebohmert, discussing recent innovation and continued concerns.

1、Which model measuring name concentration estimates an upper bound to the granularity adjustment?

A) Gordy and Lütkebohmert.

B) Vasicek.  

C) Emmer and Tasche. 

D) BET.

nayizhenfeng

 

The correct answer is A

 

Gordy and Lütkebohmert estimates an upper bound to the granularity adjustment.

nayizhenfeng

 

2、Which of the following are problems with Gordy and Lütkebohmert?

      I. The granularity adjustment may not work well on small portfolios.

     II. The model ignores idiosyncratic recovery risk.

    III. The adjustment is inconsistent with the IRB model.

    IV. The model performs poorly.

A) I and II.

B) II and III.

C) I and III.

D) II and IV.

nayizhenfeng

 

The correct answer is C

 

The Gordy and Lütkebohmert granularity adjustment may not work well on small portfolios. Fortunately, the adjustment errors on the conservative side and may still be useful. Second, the underlying model is inconsistent with the IRB model and therefore, cannot be tested.

nayizhenfeng

 

5、High asset correlation in the IRB credit risk weight function is associated with:

      I. large corporate loans.

     II. larger firm size.

    III. retail loans.

    IV. higher PD assets.

A) I and II.  

B) II and III.  

C) I, II, and IV.  

D) I only.