Risk Latte - Market & Credit Risk Quiz

Which of the following is NOT TRUE about the eigenvalue decomposition problem with respect to an asset correlation matrix:

a) if we multiply the matrix of eigenvectors with a diagonal matrix of
           eigenvalues and the post multiply this with the transpose of the eigenvector
           matrix we would retrieve the original correlation matrix;
b) all eigenvalues of an asset correlation matrix must be strictly positive for it
           to be a workable (positive semi-definite) correlation matrix;
c) transpose of the matrix of eigenvectors is equal to its inverse;
d) the matrix of eigenvectors of a valid correlation matrix is sufficient in
          transforming a set of independent random normal numbers to a set of
           correlated random numbers only the matrix;

Which of the following statements about VaR (Value at Risk) is NOT TRUE:

a) VaR uses a Gaussian distribution;
b) VaR is a coherent risk measure;
c) VaR works much better for linear portfolios (such as equities, spot FX, etc.)
as compared to non-linear portfolios (such as options and derivatives);
d) Cornish Fisher transformation is used in VaR estimation;

Which of the following VaR methodologies uses a vector of forward-forward volatilities of asset returns:

a) delta neutral VaR;
b) delta-gamma VaR;
c) vega VaR;
d) none of the above;

A Cholesky matrix can be described as a:

a) square root matrix;
b) cube root matrix;
c) stochastic matrix;
d) none of the above;

A spot FX trader is long Dollar-Yen for an amount of $5 million. The volatility of Dollar-Yen is 10%. His “net exposure” (or risk exposure) is:

a) $5 million
b) $50 million
c) $0.5 million
d) $0.25 million

A price/volatility (price-vol) matrix is mostly used by a trader who manages the risk of:

a) a spot FX book;
b) an FX swaps book;
c) an FX options book;
d) none of the above;

Macro-hedging is a concept associated with:

a) a spot FX book;
b) an interest rate swaps book;
c) an equity options book;
d) an FX options book;

For an asset correlation matrix to be valid and workable:

a) all eigenvalues of the correlation matrix should be negative;
b) the determinant of the correlation matrix should be strictly negative;
c) cholesky matrix should exist;
d) at least one eigenvalue of the correlation matrix should be negative;

If the daily volatility of an asset is 1% and if there are 252 trading days in a year then the annualized volatility of the asset would be:

a) 16.35%
b) 15.87%
c) 14.85%
d) 15.15%

Cornish-Fisher expansion takes into account:

a) the skewness of an empirical distribution;
b) the kurtosis of an empirical distribution;
c) both the skewness and the kurtosis of an empirical distribution;
d) is valid only for a gamma distribution;