FRM Market Risk Flashcards
6 cards from real FRM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 FRM Market Risk flashcards as text
What does Value at Risk (VaR) measure at a 95% confidence level over a 1-day horizon?
Answer: The maximum loss not exceeded with 95% probability over one day
VaR at 95% confidence measures the maximum loss that will not be exceeded on 95% of days, meaning losses exceed this level only 5% of the time.
Which of the following best describes Expected Shortfall (ES)?
Answer: The average of all losses beyond the VaR threshold
Expected Shortfall, also called Conditional VaR (CVaR), is the average loss conditional on the loss exceeding the VaR threshold.
Under Basel III, what is the standard multiplier applied to the 10-day 99% VaR for market risk capital requirements?
Answer: 3
Basel III requires banks to hold capital equal to at least 3 times the 10-day 99% VaR, subject to supervisory add-ons for backtesting exceptions.
What is the primary limitation of historical simulation as a VaR method?
Answer: It assumes future market conditions mirror the historical window used
Historical simulation relies entirely on a historical data window, so it cannot capture risk scenarios outside that period.
A bond portfolio has a DV01 of $5,000. If interest rates rise by 10 basis points, what is the approximate dollar loss?
Answer: $50,000
DV01 measures dollar value change per 1 basis point, so a 10 bp move results in 10 × $5,000 = $50,000 loss.
Which Greek measures the rate of change of an option's delta with respect to the underlying asset price?
Answer: Gamma
Gamma is the second derivative of option price with respect to the underlying price, representing how quickly delta changes.