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Which of the following is not a measure of risk sensitivity of some kind?
Suggested Answer: B
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Volatility clustering leads to levels of current volatility that can be significantly different from long run averages. When volatility is running high, institutions need to shed risk, and when it is running low, they can afford to increase returns by taking on more risk for a given amount of capital. An institution's response to changes in volatility can be either to adjust risk, or capital, or both. Accounting for volatility clustering helps institutions manage their risk and capital and therefore statements I and II are correct.
Regulatory requirements do not require volatility clustering to be taken into account (at least not yet). Therefore statement III is not correct, and neither is IV which is completely unrelated to volatility clustering.
43 comments · newest first
TA
Talia
10 months ago
Not sure about that, sounds off to me.
SA
Samira
11 months ago
Wait, is PL01 really not a risk measure?
LA
Lai
11 months ago
Convexity definitely measures risk sensitivity.
RE
Reita
11 months ago
I think CR01 is also risk-related.
FR
Francine
11 months ago
Delta is a measure of risk sensitivity.
DE
Detra
12 months ago
Delta is usually tied to options pricing, but I can't recall if it's considered a risk measure or not.
ST
Stanton
12 months ago
CR01 is about credit risk, right? So it must be a measure of risk sensitivity.
LO
Lorrie
12 months ago
Convexity definitely sounds like a measure of risk sensitivity, especially in bond pricing.
TE
Teddy
1 year ago
I think I remember that PL01 is related to profit and loss, but I'm not entirely sure if it's a risk measure.
AI
Aide
1 year ago
I think I've got this one! PL01 is not a risk measure, it's a credit risk metric. The rest are all related to market risk in some way. I'll go with A.
JA
James
1 year ago
I'm a bit confused on this one. I know Convexity and Delta are related to risk, but I'm not sure about the others. Guess I'll have to eliminate the ones I'm less certain about.
JE
Jerrod
1 year ago
Okay, let me see... PL01, Convexity, CR01, Delta. I'm pretty sure Delta is a measure of risk sensitivity, so that's probably not the answer.
VI
Vincenza
1 year ago
Hmm, this seems like a tricky one. I'll need to think through the different risk measures carefully to figure out which one doesn't fit.
BE
Belen
1 year ago
Wait, is PL01 the risk sensitivity of my airplane pilot? I hope not!
DE
Destiny
1 year ago
User 3: CR01 is another measure of risk sensitivity.
AL
Alecia
1 year ago
User 2: Delta is not a measure of risk sensitivity.
JE
Jeannetta
1 year ago
User 1: No, PL01 is not related to airplane pilots.
LE
Leota
1 year ago
CR01? Sounds like a typo. I'll go with that one.
JO
Joanne
1 year ago
CR01? Sounds like a typo. I'll go with that one.
DA
Darrel
1 year ago
D) Delta
EL
Elise
1 year ago
C) CR01
RE
Refugia
1 year ago
B) Convexity
IR
Irene
1 year ago
A) PL01
AR
Arminda
1 year ago
Convexity? That's gotta be it. Who comes up with these terms anyway?
GR
Gracia
1 year ago
Convexity is actually a measure of risk sensitivity, so it's not the answer.
CA
Carolynn
1 year ago
No, I'm pretty sure it's A) PL01.
FA
Fanny
1 year ago
I think it's D) Delta.
MO
Mona
1 year ago
D) Delta
ME
Meghann
1 year ago
C) CR01
EV
Evan
1 year ago
B) Convexity
JE
Jean
1 year ago
A) PL01
AD
Adolph
1 year ago
PL01? Sounds like something from a sci-fi movie. Definitely not a risk measure.
KI
Kindra
1 year ago
PL01? Sounds like something from a sci-fi movie. Definitely not a risk measure.
EL
Elenora
1 year ago
D) Delta
SH
Sherron
1 year ago
C) CR01
PH
Phillip
1 year ago
B) Convexity
LO
Lorrine
1 year ago
A) PL01
AN
Anna
1 year ago
Hmm, I see your point. Let's discuss further to figure out the correct answer.
PA
Paz
1 year ago
Hmm, I thought Delta was a measure of risk sensitivity. Tricky one!
LA
Laurel
1 year ago
User 2: Yeah, it can be confusing sometimes. But in this case, it's not considered a measure of risk sensitivity.
PR
Providencia
1 year ago
User 1: Delta is actually a measure of risk sensitivity.
PE
Pearly
2 years ago
I disagree, I believe the answer is A) PL01.
AN
Anna
2 years ago
I think the answer is D) Delta.