Free PRMIA 8010 Exam Dumps June 2026

Extreme value theory focuses on the extreme and rare events, and in the case of VaR calculations, it is focused on the right tail of the loss distribution. In very simple and non-technical terms, EVT says the following:

1. Pull a number of large iid random samples from the population,

2. For each sample, find the maximum,

3. Then the distribution of these maximum values will follow a Generalized Extreme Value distribution.

(In some ways, it is parallel to the central limit theorem which says that the the mean of a large number of random samples pulled from any population follows a normal distribution, regardless of the distribution of the underlying population.)

Generalized Extreme Value (GEV) distributions have three parameters: (shape parameter), (location parameter) and (scale parameter). Based upon the value of , a GEV distribution may either be a Frechet, Weibull or a Gumbel. These are the only three types of extreme value distributions.

Statement I is correct. Retail Risk Based Pricing (RRBP) involves the use of borrower specific data (such as FICO scores, average balances etc) to arrive at credit decisions. These 'retail' credit decisions may include decisions on whether to grant a line of credit, a mortgage, issue a credit card, or any of the various other retail activities a bank may be dealing with. At the same time, this data can also be used to price the product, in addition to providing a yes or no credit decision so that risky borrowers are charged more than less risky borrowers.

Statement II is not correct, because an integrated Risk Information Management Environment includes three elements - people, processes and technology (and not just people and processes).

Statement III is correct. An LDM is a blue print of an organization's data, and describes the relationships between the various data elements.

Statement IV is not correct because reference data and metadata are not the same thing. Reference data refers to relatively static data, such as customer name (while actual transactions may not be so static). Metadata refers to data about data, and is stored in a data dictionary.

Therefore Choice 'b' is the correct answer and the rest are incorrect.

Choice 'd' represents a risk that does not arise from its holdings of mortgages. Therefore Choice 'd' is the correct answer.

All the other risks identified are correct - the bank faces interest rate, default and prepayment risks on its mortgages.

Incremental capital (or incremental VaR, depending upon the context), is a measure of the change in the capital (or VaR) requirements if a certain change is made to a portfolio. It uses the 'before' and 'after' approach, ie find out what the capital requirement or VaR will be without the change, and what it will be after the change. The difference is the incremental capital or incremental VaR. It helps measure the change in risk as a result of a particular action, eg a change in a position.

Marginal capital or VaR on the other hand is a method to break down the capital requirement or the VaR so that it can be assigned to individual positions within the portfolio. The total of marginal capital or marginal VaR for all the positions in a portfolio adds up to the total capital requirements or total VaR. Note that marginal VaR is also called component VaR.

Therefore incremental capital is the correct answer to this question. The other choices are incorrect. In the exam, the question may be phrased differently, so try to keep in mind the different between incremental and marginal capital, which can be a bit confusing given what these terms mean in plain English.

The commercial paper has greater credit risk as the entire notional is outstanding. On the forward contract, only the replacement value of the contract, which normally would be a mere fraction of the notional, would be at risk.

Therefore Choice 'd' is the correct answer.