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PRMIA Exam 8008 Topic 1 Question 6 Discussion

Actual exam question for PRMIA's Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP ? 2015 Edition exam
Question #: 6
Topic #: 1
[All Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP ? 2015 Edition Questions]

Which of the following are valid techniques used when performing stress testing based on hypothetical test scenarios:

I,Modifying the covariance matrix by changing asset correlations

II,Specifying hypothetical shocks

III,Sensitivity analysis based on changes in selected risk factors

IV. Evaluating systemic liquidity risks

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Suggested Answer: D

Each of these represent valid techniques for performing stress testing and building stress scenarios. Therefore d is the correct answer. In practice, elements of each of these techniques is used depending upon the portfolio and the exact situation.


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