CRA Quantitative Risk Analysis 3

Question 1

What is the key difference between Value at Risk (VaR) and Expected Shortfall (ES)?

Accepted Answer

ES averages losses beyond the VaR threshold; VaR only marks a loss quantile

Answer

Expected Shortfall (CVaR) is the mean of losses that exceed the VaR level, providing a fuller picture of tail risk.

Question 2

Which simulation technique reduces variance in Monte Carlo output by ensuring samples are more evenly distributed across the input probability space?

Accepted Answer

Latin Hypercube Sampling (LHS)

Answer

LHS stratifies the input distribution into equal-probability intervals, ensuring better coverage and reducing output variance with fewer iterations.

Question 3

In a Bayesian network used for risk analysis, what do the conditional probability tables (CPTs) represent?

Accepted Answer

The probability of a node's state given the states of its parent nodes

Answer

CPTs define the conditional probability of each node given every combination of its parent nodes' states in the Bayesian network.

Question 4

A project schedule risk analysis shows a P50 completion date of June 1 and a P90 date of August 15. What does this mean for the risk manager?

Accepted Answer

There is a 50% chance the project finishes before June 1 and a 90% chance before August 15

Answer

P50 and P90 are percentiles: 50% of simulated outcomes complete by June 1 and 90% complete by August 15.

Question 5

Which of the following is a key limitation of using historical data alone for quantitative operational risk modeling?

Accepted Answer

Rare tail events may not be represented in the historical record

Answer

Black swan or low-frequency, high-severity events may simply not appear in historical datasets, causing models to underestimate tail risk.

(CRA) Certified Risk Architect Practice Test