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

As part of a reverse stress test, a firm has to identify and assess the scenarios most likely to cause it to fail, or in other words using the language used by the FSA in the UK, for its current business plan to become unviable. A firm's business plan should be considered to become unviable at the point that crystallizing risks cause the market to lose confidence it it, with the consequence that counterparties and other stakeholders are unwilling to transact with it or provide capital to the firm and, where releant, that existing counterparties may seek to terminate their contracts. Recent experience suggests that this point is reached well before a firm's regulatory capital is exhausted.

Large known losses, or negative EBITDA (earnings before interest , tax, depreciation and amortization) may be indicators or contribute to the loss of confidence, but do not of themselves make the current business plan unviable. Therefore Choice 'd' is the correct answer.

The actuarial or CreditRisk+ model considers default as an 'end of game' event modeled by a Poisson distribution. The annual number of defaults is a stochastic variable with a mean of μ and standard deviation equal to √μ.

The probability of n defaults is given by (μ^n e^-μ) /n!, and therefore in this case is equal to (=2^4 * exp(-2))/FACT(4)) = 0.0902.

Note that CreditRisk+ is the same methodology as the actuarial approach, and requires using the Poisson distribution.

Incremental VaR is the change in portfolio VaR resulting from a change in a single position. This is accurately described by VaR_(p+a) - VaR_p. The other answers are incorrect, and describe other concepts.

It is important to know and understand the ideas behind MVaR (marginal VaR), CVaR (component VaR) and iVaR (incremental VaR), and the differences between them.