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FRM 2 Question and answers correctly solved 2024/2025 $13.99   Add to cart

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FRM 2 Question and answers correctly solved 2024/2025

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FRM 2 Question and answers correctly solved 2024/2025 FRM 2 Netting Factor - correct answer sqrt(n + n (n - 1) p) / n Ho-Lee Model - correct answer dr = lambda(t)*dt + sigma*dw Vasicek Model - correct answer dr = k*(theta - r)*dt + sigma*dw Half-life = ln(2)/k Cox-Ingersoll-R...

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  • October 3, 2024
  • 30
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • frm 2
  • REFM
  • REFM
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Carzola98
FRM 2
Netting Factor - correct answer ✔sqrt(n + n (n - 1) p) / n


Ho-Lee Model - correct answer ✔dr = lambda(t)*dt + sigma*dw


Vasicek Model - correct answer ✔dr = k*(theta - r)*dt + sigma*dw


Half-life = ln(2)/k


Cox-Ingersoll-Ross Model (CIR) - correct answer ✔dr = k*(theta - r)*dt +
sigma*sqrt(r)*dw


Friction 1: Mortgagor and Originator - correct answer ✔The borrower may
not even be aware of the financing options available. On the other hand, the
lender may steer the borrower to products that are not suitable.


Friction 2: Originator and Arranger - correct answer ✔The arranger (issuer)
purchases the loans from the originators for the purpose of resale through
securitized products. The originator has superior knowledge about the
borrower (adverse selection problem).


Friction 3: Arranger and third-parties - correct answer ✔The arranger of the
pool of mortgages will possess better information about the borrower than
third parties including rating agencies, asset managers, and warehouse
lenders.

,Friction 4: Servicer and Mortgagor - correct answer ✔The servicer's role is to
manage the cash flows of the pool and follow up on delinquencies and
foreclosures. A conflict of interest arises for delinquent loans.


Friction 5: Servicer and third-parties - correct answer ✔The servicer faces a
moral hazard problem because their (lack of) effort can impact the asset
manager and credit rating agencies without directly affecting their own cash
flow distribution.


Friction 6: Asset manger and investor - correct answer ✔The investor relies
on the asset manager's expertise to identify and analyze potential investments


Friction 7: Investor and credit rating agencies - correct answer ✔Rating
agencies are compensated by the arranger and not the end user, the investor.


Default time distribution - correct answer ✔F(t) = 1 - e^(-lambda*t)


Coherent Risk Measure: Monotonicity - correct answer ✔If X < Y, then p(Y) <
p(X)


If the expected value of Y is greater than X, then the risk of Y is less than the
risk of X


Coherent Risk Measure: Sub-additivity - correct answer ✔p(X + Y) < p(X) +
p(Y)


The portfolio's risk should not be greater than the sum of its parts


Coherent Risk Measure: Positive Homogenity - correct answer
✔p(lambda*X) = lambda*p(X)

, Double portfolio, double the risk


Coherent Risk Measure: Translation Invariance - correct answer ✔p(X + c) =
p(X) - c


Like adding cash


Operational Risk Management: 3 Lines of Defense - correct answer ✔1.
Business Line Management
2. Independent Corporate operation RM function
3. Independent review/audit


Basel Suggestions for Sound Operational Risk Managemnet - correct answer
✔1. Strong risk management culture
2. Fully integrated with overall RM process
3. Board of directors reviews OR framework
4. Board approves risk appetite/tolerance
5. Well defined governance structure
6. Incentives incorporate risks taken
7. Approval for new line of business
8. Constant monitoring of OR
9. Internal controls to mitigate/transfer risk
10. Major business disruption plans
11. Disclosure


Risk Capacity - correct answer ✔Max level of risk an institution can take

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