hull

Learning objectives: Identify the major risks faced by a bank. Distinguish between economic capital and regulatory capital. Questions: 700.1. Below is a hypothetical summary income statement for Deposits and Loans Corporation (DLC): Risks can affect any line in the income statement, but...

Learning objectives: Define copula and describe the key properties of copulas and copula correlation. Explain tail dependence. Describe the Gaussian copula, Student’s t-copula, multivariate copula, and one-factor copula. Questions: 707.1. Below are the joint probabilities for a cumulative...

Learning objectives: Calculate covariance using the EWMA and GARCH(1,1) models. Apply the consistency condition to covariance. Describe the procedure of generating samples from a bivariate normal distribution. Describe properties of correlations between normally distributed variables when using...

Learning objective: Define correlation and covariance and differentiate between correlation and dependence. Questions: 705.1. In order to evaluate the the potential of a linear relationship between portfolio returns and a benchmark index, your colleague Richard conducted a univariate...

Learning objectives: Explain mean reversion and how it is captured in the GARCH(1,1) model. Explain the weights in the EWMA and GARCH(1,1) models. Explain how GARCH models perform in volatility forecasting. Describe the volatility term structure and the impact of volatility changes. Questions...

Learning objectives: Apply the exponentially weighted moving average (EWMA) model to estimate volatility. Describe the generalized autoregressive conditional heteroskedasticity (GARCH(p,q)) model for estimating volatility and its properties. Calculate volatility using the GARCH(1,1) model...

In Hull - Risk Management and Financial Institutions, it is stated, in page 222 (10.10 using GARCH(1,1) to forecase future volatility), that: "the expected value of u(n+t−1)^2 is σ(n+t−1)^2". Is this something obvious? Can anybody explain why this should be the case? Thanks!

Learning objectives: Compare the various liquidity horizons proposed by the FRTB for different asset classes and explain how a bank can calculate its expected shortfall using the various horizons. Explain proposed modifications to Basel regulations in the following areas: classification of...

Learning objective: Describe the proposed changes to the Basel market risk capital calculation and the motivations for these changes, and calculate the market risk capital under this method. Questions: 608.1 In January 2016 the Basel Committee on Banking Supervision (BCBS) issued its Revised...

Learning objective(s): Describe how trading, commissions, margin requirements, and exercise typically work for exchange-traded options. Questions: 608.1. A trader has a put option contract to sell 100 shares of a stock for a strike price of $50.00. Each of the following is true EXCEPT which is...

Learning outcome: Explain the major changes to the U.S. financial market regulations as a result of Dodd-Frank. Questions: 524.1. One lesson from the 2007 credit crisis is that over-the-counter (OTC) derivatives, which are supposed to protect business from risks, can create systemic risk by...

Learning outcome: Explain the major changes to the U.S. financial market regulations as a result of Dodd-Frank . Questions: 523.1. Although there is debate about the cause(s) of the 2007-08 credit crises, most commentators agree that the origin included irresponsible lending practices. In...

Learning outcomes: Describe and calculate ratios intended to improve the management of liquidity risk, including the required leverage ratio, the liquidity coverage ratio, and the net stable funding ratio. Describe the mechanics of contingent convertible bonds (CoCos) and explain the motivations...

Learning outcomes: Define in the context of Basel II and calculate where appropriate: Probability of default (PD), Loss given default (LGD), Exposure at default (EAD), Worst-case probability of default. Differentiate between solvency capital requirements (SCR) and minimum capital requirements...

Learning outcomes: Calculate VaR and the capital charge using the internal models approach , and explain the guidelines for backtesting VaR according to the 1996 Basel guideline. Questions: (Source: John Hull, Risk Management and Financial Institutions, 5th Edition (New York: John Wiley & Sons...

Learning outcomes: Define copula, describe the key properties of copula and copula correlation. Explain one tail dependence. Describe Gaussian copula, Student t-copula, multivariate copula and one factor copula. Questions: 504.1. In regard to copulas, each of the following is true EXCEPT which...

Learning outcomes: Explain the roles of incentives and regulatory arbitrage in the outcome of the crisis. Apply the key lessons learned by risk managers to the scenarios provided. Questions: 510.1. “Agency costs” is a term used to describe the costs in a situation where the interests of two...