Hull:Options,Futures,andOtherDerivatives,NinthEditionChapter22:ValueatRiskMultipleChoiceTestBank:QuestionswithAnswers1.Whichofthefollowingistrueofthe99.9%valueatrisk?A.Thereis1chancein10thatthelosswillbegreaterthanthevalueofriskB.Thereis1chancein100thatthelosswillbegreaterthanthevalueofriskC.Thereis1chancein1000thatthelosswillbegreaterthanthevalueofriskD.NoneoftheaboveAnswer:CA99.9%VaRmeansthatthereisa0.1%chanceofthelossexceedingtheVaRlevel.Thisis1chancein1000.2.Thegainfromaprojectisequallylikelytohaveanyvaluebetween-$0.15millionand+$0.85million.Whatisthe99%valueatrisk?A.$0.145millionB.$0.14millionC.$0.13millionD.$0.10millionAnswer:BThegainisuniformlydistributedbetween−0.15and+0.85milliondollars.Theprobabilitythatitwillbebetween−0.15and−0.14milliondollarsistherefore1%.Thismeansthatthereisa99%chancethatthelosswillnotbegreaterthan$0.14million.Thisisthe99%VaR.3.Thegainfromaprojectisequallylikelytohaveanyvaluebetween−$0.15millionand+$0.85million.Whatisthe99%expectedshortfall?A.$0.145millionB.$0.14millionC.$0.13millionD.$0.10millionAnswer:AAsexplainedintheanswertothepreviousquestiontheVaRlevelis$0.14million.Conditionalonthelossbeinggreaterthan$0.14millionitisequallylikelytohaveanyvaluebetween$0.14millionand$0.15million.Theexpectedlossconditionalthatitisgreaterthan$0.14millionistherefore$0.145million.Thisistheexpectedshortfall.4.WhichofthefollowingistrueofthehistoricalsimulationmethodforcalculatingVaR?A.ItfitshistoricaldataonthebehaviorofvariablestoanormaldistributionB.ItfitshistoricaldataonthebehaviorofvariablestoalognormaldistributionC.ItassumesthatwhatwillhappeninthefutureisarandomsamplefromwhathashappenedinthepastD.ItusesMonteCarlosimulationtocreaterandomfuturescenariosAnswer:CThehistoricalsimulationmethodassumesthatthepercentagechangesinallmarketvariablesduringthenextdayisarandomsamplefromthepercentagechangesinacertainnumberofpastdays.5.The10-dayVaRisoftenassumedtobewhichofthefollowingA.The1-dayVaRmultipliedby10B.The1-dayVaRmultipliedbythesquarerootof10C.The1-...
