Financial Risk Management Market Risk Management 2

Question 1

What is the 'Greeks' in options risk management?

Accepted Answer

Sensitivity measures that describe how an option's price changes with market variables

Answer

Ancient financial philosophers who invented derivatives

Answer

Regulatory capital ratios for options positions

Answer

The set of mathematical models used for pricing European options

Question 2

Gamma risk in options refers to:

Accepted Answer

The risk that the delta of an option changes as the underlying price moves

Answer

The risk that implied volatility will increase sharply

Answer

Interest rate sensitivity of options on bonds

Answer

The daily time decay of option premium

Question 3

Under the Basel III framework, what is the Fundamental Review of the Trading Book (FRTB)?

Accepted Answer

A revised market risk capital framework replacing the internal models approach

Answer

A review of all trading book positions for accounting purposes

Answer

A stress test required quarterly for all US banks

Answer

The process for reclassifying assets between banking and trading books

Question 4

What is 'wrong-way risk' in the context of market risk?

Accepted Answer

The risk that exposure to a counterparty increases as the counterparty's creditworthiness deteriorates

Answer

Risk arising from incorrect model parameters in VaR calculations

Answer

Trading losses caused by erroneous order entry

Answer

Basis risk between hedging instrument and the exposure being hedged

Question 5

A portfolio manager uses a duration of 5 years for a bond portfolio. If interest rates rise by 100 basis points, the approximate price change is:

Accepted Answer

-5%

Answer

-0.5%

Answer

+5%

Answer

-50%

Question 6

Which approach for market risk VaR uses actual historical market returns without distributional assumptions?

Accepted Answer

Historical simulation

Answer

Monte Carlo simulation

Answer

Parametric (variance-covariance) method

Answer

Delta-normal approach