R Programming Language Certification Risk Assessment & Management 3

Question 1

In credit risk modeling with R, which function from the `CreditMetrics` package computes portfolio loss distributions?

Accepted Answer

cm.portfolio()

Answer

`cm.portfolio()` simulates the portfolio loss distribution using asset correlations and default thresholds.

Question 2

What R technique is used to assess model risk by comparing predictions across multiple model specifications?

Accepted Answer

Model averaging with BMA or ensemble methods

Answer

Bayesian Model Averaging (BMA) and ensemble methods quantify uncertainty across model specifications, directly addressing model risk.

Question 3

Which R function computes the Conditional Value at Risk (CVaR), also called Expected Shortfall?

Accepted Answer

PerformanceAnalytics::ES()

Answer

`ES()` from PerformanceAnalytics computes the expected loss given that the loss exceeds the VaR threshold.

Question 4

When modeling operational risk with heavy-tailed distributions in R, which distribution family is most commonly applied?

Accepted Answer

Extreme Value (GEV/GPD)

Answer

Extreme Value Theory distributions like GEV and GPD are specifically designed to model the tails of loss distributions in operational risk.

Question 5

In R, the `evd` package function `fpot()` is used to fit which model relevant to tail risk?

Accepted Answer

Peaks Over Threshold (POT) using the Generalized Pareto Distribution

Answer

`fpot()` fits a Generalized Pareto Distribution to exceedances over a chosen threshold, central to Peaks-Over-Threshold analysis.

R Programming Language Certification Practice Test