Postby edupristine » Fri Mar 18, 2016 12:59 pm
Hi Rainer
Here are some Questions and Answers of them from Chapter 9. Credit Risk & Counterparty Risk.
1. James working in the Credit Risk Management division of leading investment Bank ABC wanted to stimulate Expected Exposure for the calculation of CVA. Which of the below decision taken by him will not increase the accuracy?
A. Increase in no. of period in stimulation process.
B. Increase in no. of grid point.
C. Double the no. stimulations.
D. Calibrate the stimulation model using Market implied data.
Answer: A. Increase in no. of period in stimulation process.
2. Which of the below statement is least accurate about the calculation of Expected Exposure for CVA calculation?
A. Illiquid trades require more no. of grid points for accurate calculation.
B. It is always better to have larger no. of stimulations and grid points.
C. Historical data for model calibration could lead to model arbitrage.
D. No. of stimulation used for simple swap instruments ranges from 5000 to 10000.
Answer: B. It is always better to have larger no. of stimulations and grid points.
3. Which of the following is true about the BVA calculation?
A. CVA have been recently used as a part of FVA calculation.
B. DVA increase increases the value of firm.
C. For exact calculation of BVA its safe to assume CVA and DVA part are independent of each other and difference between UCVA and UDVA give BVA.
D. Decrease in BVA increases firms reported profitability.
Answer: C. For exact calculation of BVA its safe to assume CVA and DVA part are independent of each other and difference between UCVA and UDVA give BVA
4. Which of the following statement is correct about Credit Value Adjustment, CVA ?
A. CVA could be defined as difference between Risky Value of Derivative and Value of derivative without considering any market risk.
B. Increase in Probability of Default of a bank will lead to increase in CVA cost incurred by it.
C. As the Recovery Rate increases CVA cost decreases.
D. While calculating Expected Exposure greater value of negative exposure will lead to increase in CVA cost.
Answer: A. CVA could be defined as difference between Risky Value of Derivative and Value of derivative without considering any market risk.