Exam 14: Financial Risk Management Techniques and Appplications

Which of the following instruments could be used to execute a delta,gamma and vega hedge?

Which of the following best describes the delta normal method?

If a firm holds a position in an option,it can delta and gamma hedge the position by adding a position in another option.

A delta-hedged position is one in which the

One reason firms manage risk with derivatives is to lower bankruptcy costs.

In option terms,the limited liability of corporate stockholders is

Delta,gamma,and vega hedging is rather complex.Identify the false statement.

Which of the following is the primary impetus for the growth in the practice of risk management?

A total return swap is best described as

Which of the following are not methods of determining the VAR?

A credit default swap is an ordinary swap that is subject to default.

Vega hedging is required only in options portfolios.

The historical method for computing Value at Risk estimates the distribution of the portfolio's performance by collecting data on the past performance of the portfolio and using it to estimate the future probability distribution.

One good reason for practicing risk management is that arbitrage opportunities can be earned.

The Monte Carlo simulation method of estimating Value at Risk is one of the most flexible methods because it permits the user to assume any probability distribution.

Which of the following techniques is a more appropriate risk management tool for a company in which asset value is not easily measurable?

Stress testing is one method of estimating Value at Risk.

If a firm engages in risk management to capture arbitrage profits,what is it easy to overlook?

The risk that errors can occur in inputs to a pricing model is called

Netting allows a significant reduction in credit risk but increases market risk