Chapter 3 · Section 5 practice

Portfolio Losses and Tail Risk

0 of 8 answered

These questions review the examples in the companion slides. Choose an answer, then check the explanation.

Question 1

The historical monthly ES uses two tail months. What is the appropriate interpretation?

  • A precise future loss limit
  • A sparse-sample tail summary requiring uncertainty and more evidence
  • Proof that worse losses cannot happen
  • A daily risk measure

Question 2

Which risk statistic changes when return order changes but the set of returns stays fixed?

  • Maximum drawdown
  • The empirical loss quantile
  • The mean loss
  • The unordered tail mean

Question 3

A GEV fitted to 20-day block minima describes what outcome?

  • The compounded 20-day portfolio return
  • The average daily return in each block
  • The worst single daily return in each block
  • The maximum portfolio weight

Question 4

Which denominator belongs with tail co-exceedance?

  • All non-missing feature cells
  • The number of fitted parameters
  • The number of portfolio holdings
  • The number of market-tail dates

Question 5

For continuous losses, which description distinguishes VaR95 from ES95?

  • VaR is the maximum possible loss; ES is the mean return
  • Both are confidence limits for mean return
  • VaR is the 95th loss percentile; ES is mean loss beyond that percentile
  • ES counts how many observations are in the sample

Question 6

genextreme.fit returns c = -0.35. Which interpretation follows from this fitted family?

  • A bounded upper loss tail because c is negative
  • A heavy unbounded upper loss tail because ξ = 0.35
  • A Gaussian tail with standard deviation 0.35
  • A 35% probability of losing money

Question 7

Why should we compare several plausible POT thresholds?

  • The highest threshold always gives the most precise estimate
  • More excesses always mean a better tail approximation
  • Threshold choice changes approximation bias, sample size and uncertainty
  • We should select whichever threshold gives the smallest reported VaR

Question 8

Which summary correctly reports the POT result?

  • The strategy cannot lose more than 3.27% in a month
  • A 1985–1990 Dow fit above 1.5% daily log loss uses 91 excesses and estimates daily log-loss VaR99 near 3.27%
  • Ninety-one exceedances guarantee a precise future tail probability
  • ES99 is a 99% confidence interval for mean return