Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions

PRMIA Operational Risk Manager (ORM) Exam

Exam Name: Operational Risk Manager (ORM) Exam
Exam Code: Operational Risk Manager (ORM) Exam
Related Certification(s): PRMIA Operational Risk Management ORM Certification
Certification Provider: PRMIA
Number of Operational Risk Manager (ORM) Exam practice questions in our database: 241 (updated: May. 10, 2024)
Disscuss PRMIA Operational Risk Manager (ORM) Exam Topics, Questions or Ask Anything Related

Currently there are no comments in this discussion, be the first to comment!

Free PRMIA Operational Risk Manager (ORM) Exam Exam Actual Questions

Note: Premium Questions for Operational Risk Manager (ORM) Exam were last updated On May. 10, 2024 (see below)

Question #1

As the persistence parameter under EWMA is lowered, which of the following would be true:

Reveal Solution Hide Solution
Correct Answer: B

The persistence parameter, , is the coefficient of the prior day's variance in EWMA calculations. A higher value of the persistence parameter tends to 'persist' the prior value of variance for longer. Consider an extreme example - if the persistence parameter is equal to 1, the variance under EWMA will never change in response to returns.

1 - is the coefficient of recent market returns. As is lowered, 1 - increases, giving a greater weight to recent market returns or shocks. Therefore, as is lowered, the model will react faster to market shocks and give higher weights to recent returns, and at the same time reduce the weight on prior variance which will tend to persist for a shorter period.


Question #2

The 99% 10-day VaR for a bank is $200mm. The average VaR for the past 60 days is $250mm, and the bank specific regulatory multiplier is 3. What is the bank's basic VaR based market risk capital charge?

Reveal Solution Hide Solution
Correct Answer: C

The current Basel rules for the basic VaR based charge for market risk capital set market risk capital requirements as the maximum of the following two amounts:

1. 99%/10-day VaR,

2. Regulatory Multiplier x Average 99%/10-day VaR of the past 60 days

The 'regulatory multiplier' is a number between 3 and 4 (inclusive) calculated based on the number of 1% VaR exceedances in the previous 250 days, as determined by backtesting.

- If the number of exceedances is <= 4, then the regulatory multiplier is 3.

- If the number of exceedances is between 5 and 9, then the multiplier = 3 + 0.2*(N-4), where N is the number of exceedances.

- If the number of exceedances is >=10, then the multiplier is 4.

So you can see that in most normal situations the risk capital requirement will be dictated by the multiplier and the prior 60-day average VaR, because the product of these two will almost often be greater than the current 99% VaR.

The correct answer therefore is = max(200mm, 3*250mm) = $750mm.

Interestingly, also note that a 99% VaR should statistically be exceeded 1%*250 days = 2.5 times, which means if the bank's VaR model is performing as it should, it will still need to use a reg multiplier of 3.


Question #3

Which of the following are valid approaches for extreme value analysis given a dataset:

1. The Block Maxima approach

2. Least squares approach

3. Maximum likelihood approach

4. Peak-over-thresholds approach

Reveal Solution Hide Solution
Correct Answer: C

For EVT, we use the block maxima or the peaks-over-threshold methods. These provide us the data points that can be fitted to a GEV distribution.

Least squares and maximum likelihood are methods that are used for curve fitting, and they have a variety of applications across risk management.


Question #4

Financial institutions need to take volatility clustering into account:

1. To avoid taking on an undesirable level of risk

2. To know the right level of capital they need to hold

3. To meet regulatory requirements

4. To account for mean reversion in returns

Reveal Solution Hide Solution
Correct Answer: B

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.


Question #5

Which of the following are valid approaches for extreme value analysis given a dataset:

1. The Block Maxima approach

2. Least squares approach

3. Maximum likelihood approach

4. Peak-over-thresholds approach

Reveal Solution Hide Solution
Correct Answer: C

For EVT, we use the block maxima or the peaks-over-threshold methods. These provide us the data points that can be fitted to a GEV distribution.

Least squares and maximum likelihood are methods that are used for curve fitting, and they have a variety of applications across risk management.



Unlock Premium Operational Risk Manager (ORM) Exam Exam Questions with Advanced Practice Test Features:
  • Select Question Types you want
  • Set your Desired Pass Percentage
  • Allocate Time (Hours : Minutes)
  • Create Multiple Practice tests with Limited Questions
  • Customer Support
Get Full Access Now

Save Cancel