Financial Risk Manager

basel Credit

2008-11-14T19:02:53-08:00

Hi David

aside from knowing the broad themes of the standardized credit basel lookup tables for risk weights, we are not expected to know what the risk weights should be for various claims and ratings, right?

Thanks

Kyle

another Q re LiqVaR

2008-11-12T12:06:52-08:00

David,

In your question set on OpRisk B (question 5) you scale 1D LVaR to 10D LVaR using SQRT(10). Intuitively, I would only scale VaR (23,300 in the example) to 10D, and then add the same 1/2 spread as previously - as the spread is calculated on the full position of $1m and assumed constant at 0.3%.

so my solution would be: $1m * 0.01 * 2.33 * SQRT(10) + 0.5 * $1m * 0.003 = 75,181

Obviously this accounts only for the easy version of LVaR (ie w/o a stdev of spread given). Or do I miss something?

Thanks for enlightenment!

Michael

metallgesellschaft case

2008-11-10T21:30:06-08:00

Hi David,

It was an excellenct screencast on Metallgesellschaft disaster. But can you tell me what they could have done which would have prevented the disaster.
thanks for the same
from
simhan

Top down approach

2008-11-09T20:57:47-08:00

Hi David,

On slide 21 (ops A), you have classified Scenario analysis as top down approach.Is this correct? as I thought this one is pretty forward looking.. Pls suggest

Regrd
OM

RAROC practice question II

2008-11-05T10:33:56-08:00

Inv A and B have:

A 5 Million return both trades have 100000 face amount volatility 14
B 6 Million retun volatility 16

Based on 99% confidence level RAROC who is better?

Again here return / var in stead of Economic capital in denominator was this switched because of readings?
If we do this correct must we do like this.
Return / ((var (99%) - var (50%) )

John

LVAR question

2008-11-05T08:38:40-08:00

Asset worth 1 million whose 95th VaR is 100.000. (normal assumption)
bid ask spread on the asset has a mean of USD 0.1 and a standard deviation of USD 0.3. What is the 95th percentile LVAR (VaR and liq risk are uncorrelated).

What is the liq var.

444000 is answere but I think it must be 344000.

In your examples you use 1.65 for the stand deviation around the mean but it is two sided so it should be 1.96

Raroc practice question

2008-11-05T07:24:39-08:00

Returns are nomally distributed.

Bond Trader with an After-tax profit of 8, Net book Market Value of 120, Weekly volatility 1.1%, Tax Rate.

What is RAROC for the bond trader.

In the answer they divide 8 by VAR. In the question there was no confidence interval but it must be 99 (z 2.33).
I think this question is not okay since Expected loss is excluded here.

84.92% is the answer.

John

RAROC formula

2008-11-04T18:14:01-08:00

Hi David,

This is regarding question 32 and 33 in practice exam II .It says RAROC=Profit/Risk Capital and Risk Capital =VaR . My understanding all along has been that the denominator is EC for RAROC calculation which is VaR-EL . FRM says denominator is RC=VaR . Also I am not familiar with formula for Risk Capital . Finding such questions very difficult to answer

Regards
Ravi

Basel-II Regulations(Servigny)

2008-10-26T11:15:49-08:00

Hi David,
In Regulations chapter of De Servigny, it is mentioned under IRB approaches Probability of default(PD) is concave in shape i.e concave PD function.What does it mean?The LGD increases linearly with capital requirement(k).Does this apply in both IRB foundation and IRB advanced approaches.

Regards,
Sunil

Liquidity Adjusted VaR

2008-10-22T09:30:46-08:00

Hi David,

In Culp’s chapter (Identifying,Measuring &Monitoring;liquidity risk page 427).
LVaR=V(Mean-(confidence level*std dev)+0.5Spread)
LVaR(confidence level,confidence level#)=V{(Mean-(confidence level*std dev)+{0.5[(mean of spread)+(confidence level#*std dev of spread)]}.
In the second formulae there are 2 confidence levels. Could you please throw some light on this formulae.Could you please upload a spread sheet on the second formulae.

Regards,
Sunil Natrajan