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1. Bank Z, a medium-size bank, uses only operational loss data from internal records to model its loss distribution from operational risk events. The bank reviewed its records, and, after confirming that they were complete records of its historical losses and that its losses could be approximated by a uniform distribution, it decided against using external loss data to estimate its loss distribution. Based on that decision, which of the following statements is correct?
A. The estimated loss distribution likely accurately represents Bank Z’s real risk because the records are accurate and complete.
B. The estimated loss distribution likely overtakes bank Z’s real risk because many incidences in the past were likely “one off.”
C. The estimated loss distribution likely is the best estimate of Bank Z’s real risk because there is no better loss data for the bank than its own.
D. The estimated loss distribution likely understates Bank Z’s real risk because the bank has not experienced a huge loss.
2. Your bank has chosen to use the advanced Internal Rating Based Approach under Basel II. The bank is contemplating a large securitization of low-quality loans that are currently on its balance sheet. You are concerned about whether the securitization will provide you with regulatory capital relief. Which one of the following approaches would be the most efficient in reducing the bank’s regulatory capital?
A. The bank sets up an Special Purpose Vehicle (SPV) that issues securities. All proceeds from selling these securities are invested in a portfolio of equities. The SPV sells protection to the bank through a credit default swap on the loans in the bank’s portfolio.
B. The bank sells the loans to an SPV and keeps an equity piece representing 8% of the value of the loans.
C. The bank sells the loans to an SPV that issues securities. These securities issued are then sold to third-party investors. The bank indicates to some investors that if credit quality of the loans declines significantly, the bank will try to help the investors, but specifies that the bank is unwilling to provide a contractual guarantee.
D. The bank forgoes the securitization and buys a credit default swap on the loans from an AAA-rated provider.
3. A 12-year, 8 percent semiannual coupon bond with $100 par value currently trades at $78.75 and has an effective duration of 9.8 years and a convexity of 130.0. What is the price of the bond if the yield falls by 150 basis points?
A. $67.17.
B. $86.47.
C. $91.48.
D. $95.43.
4. Which of the below are methods to estimate parameters of operational loss distributions?
I. Moments
II. Probability-weighted moments
III. Maximum likelihood
IV. Econometric
A. I and III
B. I, II and III
C. IV
D. III and IV
5. Asset liquidity risk is most pronounced for:
A. A $10 million position in distressed securities
B. A $10 million position in Treasury bonds
C. A $100 million position in distressed securities
D. A $100 million position in Treasury bonds
Answer
1. Correct answer: D
由于该公司的 Loss Distribution 近似于一个 Uniform distribution，可以推测该公司损失的次数比较小，且大小相近或相似，其原因大致可归类于数据选取的偏差，原因可能是由于公司刚成立不久，数据量不够大，还没有经历过比较极端巨大的损失所造成的。
2. Correct answer: C
A 中 Bank set up a SPV 形成了实际参股，要合并报表，对于减少监管资本没有帮助；B中 Bank 持有了 8%的 Equity Tranches，是 SPV 中最有风险的部分，最减少监管资本的帮助不大；C中 Bank 将手中的 Loan 完全卖出，形成了 True Sale，完全不持有头寸，直接从资本中扣除，可以实际减少监管资本。故正确；D中 Bank 放弃了证券化，单买了一个 CDS，Loan 仍然还在资产负债表中。随然通过 CDS 可以减少监管资本的要求，但是仍然没有 C 中的完全出售 Loan 来的多。
3. Correct answer ：C
Percentage price change = [(-) (effective duration)( Δy)]+[(1/2)(convexity)( Δy)2]
= [(-)(9.80)(-0.015)]+[(0.5)(130)(-0.015)2] = 16.16
Estimated price = 78.75(1+0.1616) = $91.48
4. Answer: B
The parameters of loss distributions can be estimated by moments, probability-weighted moments, or with maximum likelihood techniques
5. Answer: C
Asset liquidity risk is a function of the size of the position and the intrinsic liquidity of the instrument. Distressed securities trade much less than Treasury bonds, and so have more intrinsic liquidity. A $100 million position is more illiquid than a $10 million position in the same instrument.
