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1.A bank reports a 10-day 95% Value-at-Risk (VaR) as $10 million. This means that
A. There is only a 5% chance that the bank will gain more than $10 million in 10 days.
B. The VaR over the next day is $1 million with 95% confidence.
C. The loss over the next 10 days is expected to be at most $10 million in 95% of the cases.
D. The minimum loss over the next 10 days is expected to be at least $10 million in 95% of the cases.
2.Which of the following statements is TRUE?
A. The linear model can provide only approximate estimates of the VaR for a portfolio containing options.
B. The historical simulation approach for calculating the VaR assumes that asset returns are normally distributed.
C. When assets in a portfolio become more correlated, the VaR of the portfolio becomes lower.
D. None of the above.
3.What is TRUE about the Expected Shortfall (ES)?
A. The expected shortfall is the expected loss given that the loss is greater than the VaR level.
B. The expected shortfall is a coherent risk measure.
C. Two portfolios with the same VaR can have very different expected shortfalls.
D. All of the above.