Market Risk — Frm Part 2 Practice Questions

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1. A leptokurtic distribution, often modeled by EVT, is characterized by which of the following compared to a Nor
2. If a bank records 11 exceptions in a 250-day backtesting window for 99% VaR, what is the regulatory presumptio
3. In the GPD framework, if the threshold u is chosen too low, what is the most likely error in the resulting mod
4. In the Kupiec Likelihood Ratio test, what does the null hypothesis (H_0) state?
5. The Hill estimator is primarily used to provide a direct estimate of which parameter?
6. What happens to the mean of a GPD-distributed variable if the tail index ξ ≥ 1?
7. What happens to the VaR estimate if we move from a thin-tailed (Gumbel, ξ = 0) model to a heavy-tailed (Fréche
8. What is the base capital multiplier (m) applied to a bank's internal model market risk capital requirement whe
9. What is the maximum 'plus-factor' added to the base multiplier of 3.0 for a bank that records 9 exceptions in
10. Which fixed-income mapping technique treats a bond portfolio as a single zero-coupon bond located at the weigh
11. During a significant market sell-off, how will the measured VaR likely compare to the actual realized loss?
12. A Chief Risk Officer (CRO) is reviewing backtesting results… — What is the most likely structural cause for th
13. A fund manager calculates the 'Marginal VaR' for an equity p… — What does this metric specifically measure?
14. If the normal z-score is -2.326, how will the adjusted q_CF compare to the original z?
15. If the shape parameter is ξ = 0.25, what is the tail index α?
16. Which of the following is a unique capability of the Hull-White approach relative to basic HS?
17. If the beta of position i with respect to the portfolio is β_i = 1.2, what is the Marginal VaR (MVaR) of the p
18. If the bank decides to hold economic capital equal to the 99.9th percentile of this annual distribution, which
19. Which of the following statements correctly identifies a structural deficiency of the Gaussian copula in model
20. Which mapping technique is the first to explicitly account for non-parallel shifts in the yield curve, such as
21. If the estimated shape parameter ξ is found to be exactly zero, which specific distribution type does the mode
22. A risk manager uses the Cornish-Fisher expansion to adjust a… — What is the primary purpose of this semi-param
23. A risk practitioner is using the Hill estimator to find the… — What is the practitioner looking for in this 'H
24. In term structure modeling, which characteristic distinguishes the Cox-Ingersoll-Ross (CIR) model from the Vas
25. In the context of backtesting a VaR model, what is a 'Type II error'?
26. If the returns exhibit strong volatility clustering (GARCH effects) and today is a particularly calm day, what
27. An analyst uses a Gaussian copula to model the joint default of two firms. They observe that as the threshold
28. A risk manager is utilizing the Peaks-over-Threshold (POT) framework to estimate tail risk for a hedge fund po
29. Building on the previous POT scenario (n=5000, u=20, N_u=250, ξ=0.40, β=5.0), calculate the 99% Expected Short
30. Which mapping method would best capture the risk of a yield curve 'steepening' where the 10-year rate rises mo