8008 Exam Dumps : PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition

Stress tests can cover known events, but since the future is unknown, and new events may be entirely different from what has happened in the past, they provide no assurance that an institution's worst case losses would be covered. Hence II is false.

Stress testing is required to be performed as part of Basel II, and therefore III is false.

Historical events do not have sharply defined start and end dates. Often, even after a crises ends, its after effects may continue to affect the markets for a long time. In such cases, it may be difficult to define the start and end of the crises. In many cases, the crises may persist for months or even years, making it difficult for the risk manager to identify a time period that covers the essence of the crises, and yet is focused enough to constitute a plausible scenario. Therefore IV is false too. Only I is true, and the correct answer is Choice 'b'.

Choice 'b' is the correct answer. All other answers are incorrect.

Refer to the detailed loss event type classification under Basel II (see Annex 9 of the accord). You should know the exact names of all loss event types, and examples of each.

For a dataset with 250 observations, the top 2% of the losses will be the top 5 observations. Expected shortfall is the average of the losses beyond the VaR threshold. Therefore the correct answer is (20 + 19 + 19 + 17 + 16)/5 = 18.2m .

Note that Expected Shortfall is also called conditional VaR (cVaR), Expected Tail Loss and Tail average.