PRMIA Exam 8008 Topic 1 Question 8 Discussion

Actual exam question for PRMIA's 8008 exam

Question #: 8
Topic #: 1

When doing stress tests based on historical scenarios, if no appropriate historical scenarios exist for a security, it is most INAPPROPRIATE to:

AEstimate a shock factor based on other instruments that might be considered as proxies for such a security

BLeave the position unshocked

CEstimate a shock factor based upon extrapolation

DEstimate a shock factor based upon interpolation

Show Suggested Answer

Suggested Answer: B

Where a historical shock factor does not exist for a security, for example because the security is new or was only thinly traded earlier, or because a particular emerging market was immature at the time of the historical scenario being considered, it is inappropriate to leave the position unshocked. By and large, the general rule to be followed when carrying out stress testing is to leave no position unshocked. Therefore Choice 'b' is the correct answer.

Choice 'd', Choice 'a' and Choice 'c' all represent valid approaches to estimating a shock factor in such cases.

by Paz at May 04, 2022, 06:21 PM

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