FRM II-CR 12

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

FRM II-CR 12

Postby anbu.edu » Sun Oct 19, 2014 10:42 am

Gregory gives the following approximation for expected exposure (EE) when the mark-tomarket
(MtM) is characterized by a normal distribution with zero mean:Assume an exposure is normally distributed with zero mean and volatility of 9.0% per annum. If
there are 250 trading days, which is nearest to the expected exposure (EE) at the end of ten
(10) days?
a) 0.72%
b) 1.45%
c) 3.60%
d) 7.18%
Answer
0.72% = 0.4*9.0%*sqrt(10/250)

How did they get .4

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

FRM II-CR 12

Postby edupristine » Mon Oct 20, 2014 7:20 am

Hello anbu.edu,
It seems you haven't copied the entire question. If you look at the question carefully, there is an approximation for Expected Exposure given in the question:
EE = 0.4* Volatility*sqr root (T)

Hence the value of 0.4 is given in the question itself.


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