P × Convexity, giving the dollar sensitivity of the price-yield relationship for large yield changes

The second derivative of price with respect to yield

The dollar change in price for a one basis point change in yield

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Free FRM Quantitative Analysis Practice Questions & Answers

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Question 271

Wrong-way risk in derivatives refers to:

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Question 272

Credit Value Adjustment (CVA) represents:

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Question 273

The Basel probability of default (PD) floor for retail mortgage exposures under IRB is designed to:

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Question 274

The CDS premium (spread) is approximately equal to:

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Question 275

A collateralised debt obligation (CDO) tranches credit risk by:

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Question 276

The risk contribution of an asset to portfolio VaR is computed using:

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Question 277

The credit triangle relates the CDS spread to PD and LGD approximately as:

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Question 278

Wrong-way risk (WWR) arises in which of the following situations?

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Question 279

Under Basel II, the Loss Given Default (LGD) in the Advanced IRB approach reflects:

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Question 280

Credit VaR (Credit Value at Risk) measures:

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Question 281

The rating transition matrix provides:

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Question 282

A credit linked note (CLN) embeds:

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Question 283

The internal ratings-based (IRB) approach to credit risk under Basel computes risk-weighted assets using:

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Question 284

The hazard rate (default intensity) λ in a reduced-form credit model represents:

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Question 285

The Basel II Internal Ratings Based (IRB) approach requires banks to estimate:

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Question 286

Correlation in a credit portfolio matters because:

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Question 287

The Gaussian Copula model used in CDO pricing was criticised during the 2008 crisis because:

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Question 288

Potential future exposure (PFE) in counterparty credit risk:

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Question 289

The KMV/Moody's structural approach to credit risk estimates:

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Question 290

Netting in OTC derivatives reduces credit exposure by:

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Question 291

Under Basel III, the Standardised Approach for Counterparty Credit Risk (SA-CCR) calculates:

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Question 292

The probability of default under the risk-neutral measure differs from the real-world (physical) measure because:

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Question 293

Structural credit models (Merton type) differ from reduced-form models in that:

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Question 294

Credit Value Adjustment (CVA) and Debt Value Adjustment (DVA) are related because:

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Question 295

The Basel III output floor requires that:

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Question 296

Recovery swaps allow trading of:

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Question 297

The base correlation methodology for CDO tranche pricing:

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Question 298

Basis risk in hedging refers to:

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Question 299

Dollar convexity is:

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Question 300

Interest rate risk can be decomposed into:

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Free FRM Quantitative Analysis Practice Questions & Answers

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