- Exam Code: 8007
- Exam Name: Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition
- Updated: Aug 05, 2026
- Q & A: 133 Questions and Answers
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| Section | Objectives |
|---|---|
| Topic 1: Risk Measurement Techniques | - Volatility and correlation
|
| Topic 2: Probability and Statistics Foundations | - Statistical inference
|
| Topic 3: Simulation and Numerical Methods | - Monte Carlo simulation
|
| Topic 4: Stochastic Processes and Time Series | - Time series analysis
|
1. Stress testing portfolios requires changing the asset volatilities and correlations to extreme values. Which of the following would lead to a non positive definite covariance matrix?
A) All of the above
B) Changing all the correlations to be unity
C) Changing the volatilities to be greater than 100%
D) Changing all the correlations to be zero
2. An asset price S is lognormally distributed if:
A) ln(dS/S) is normally distributed
B) the change in price (dS) is normally distributed
C) 1/S is normally distributed
D) ln(1+dS/S) is normally distributed
3. In statistical hypothesis tests, 'Type I error' refers to the situation in which...
A) The null hypothesis is rejected when in fact it should have been accepted
B) Both null hypothesis and alternative hypothesis are rejected
C) Both null hypothesis and alternative hypothesis are accepted
D) The null hypothesis is accepted when in fact it should have been rejected
4. Let a, b and c be real numbers. Which of the following statements is true?
A) The associativity of multiplication is defined by
B) The commutativity of multiplication is defined by
C) The existence of negatives is defined by
D) The distributivity of multiplication is defined by
5. Let f(x) = c for x in [0,4] and 0 for other values of x.
What is the value of the constant c that makes f(x) a probability density function; and what if f(x) = cx for x in
[0,4]?
A) 1/4 and 1/6
B) None of the above
C) 1/4 and 1/7
D) 1/7 and 1/9
Solutions:
| Question # 1 Answer: B | Question # 2 Answer: D | Question # 3 Answer: A | Question # 4 Answer: D | Question # 5 Answer: B |
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