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Value at Risk The New Benchmark for Managing Financial Risk 3rd edition Philippe Jorion - Solutions
What are the main goals of regulators for (a) Commercial banks. (b) Securities firms. (c) Insurance firms. (d) Pension funds?
Why could the government not trust the shareholders and creditors of a bank to monitor its risks?
United Airlines recently went into bankruptcy and dumped its pension plan on the PBGC, a federal insurance fund that charges fixed premiums irrespective of the risk of the pension plan. Explain how this could lead a pension plan to take on too much risk and how this could be solved.
Define moral hazard. Explain how it applies to the banking industry and why this problem arises when deposit insurance premiums are fixed. Why does this problem lead to risk-sensitive capital requirements? Give an analogy to automobile insurance.
What is the cost of heavy-handed government regulation?
What is tier 1 capital under the Basel Accord? What percentage of capital charge should be covered by tier 1 capital?
What is the main drawback of the Basel I rules for credit risk?
Suppose that the distribution of daily log returns is i.i.d. and follows a student t distribution with n = 6 degrees of freedom. As the horizon extends, what distribution should the log return tend to?
Which is a measure of dispersion of a probability distribution, the mean or the standard deviation?
In the same experiment, compute the lower quantile that has a cumulative probability of at most 5 percent.
Describe how we decompose the potential for loss into exposure and the distribution of the risk factor using an example of an investment in bonds. Which of these components is under control the of the portfolio manager?
In the fixed-income market, which measure reflects exposure to movements in underlying risk variable? How about the stock market and the derivatives market?
Provide two programming examples in which multithreading does not provide better performance than a single-threaded solution
Describe the actions taken by a thread library to context switch between user-level threads.
Under what circumstances does a multithreaded solution using multiple kernel threads provide better performance than a single-threaded solution on a single-processor system?
Can a multithreaded solution using multiple user-level threads achieve better performance on amultiprocessor system than on a single-processor system?
As described in Section 4.5.2, Linux does not distinguish between processes and threads. Instead, Linux treats both in the same way, allowing a task to be more akin to a process or a thread depending on the set of flags passed to the clone() system call. However, many operating systems- such as
Consider a multiprocessor system and a multithreaded program written using the many-to-many threading model. Let the number of user-level threads in the program be more than the number of processors in the system. Discuss the performance implications of the following scenarios.a. The number of
A U.S. fund is invested in U.S. and Japanese government bonds. Which of the four classes of risk factors is this portfolio exposed to? Give examples of movements in the risk factors that could cause losses.
The distribution of the dollar/euro exchange rate is described below, What is the mean and standard deviation of the distribution?
The distribution of General Electric's stock price is described below. Compute the 95 percent VAR and the expected tail loss (ETL). VAR is defined from the cutoff price in the table such that the probability of having a price strictly greater that the cutoff price is at least 95 percent. The
The risk manager has 10 years of monthly data for a time series of realizations of the risk factor. The sample skewness and kurtosis are "0,2 and 3.5. Check whether these numbers are consistent with a normal distribution.
Why is it important for the scheduler to distinguish I/O-bound programs from CPU-bound programs?
Explain the differences in the degree to which the following scheduling algorithms discriminate in favor of short processes: a. FCFS b. RR c. Multilevel feedback queues
Discuss how the following pairs of scheduling criteria conflict in certain settings.a. CPU utilization and response timeb. Average turnaround time and maximum waiting timec. I/O device utilization and CPU utilization
Consider the exponential average formula used to predict the length of the next CPU burst. What are the implications of assigning the following values to the parameters used by the algorithm? a. α = 0 and τ0 = 100milliseconds b. α = 0.99 and τ0 = 10milliseconds
Consider the following set of processes, with the length of the CPU-burst time given in milliseconds:The processes are assumed to have arrived in the order P1, P2, P3, P4, P5, all at time 0. a. Draw four Gantt charts illustrating the execution of these processes using FCFS, SJF, a nonpreemptive
Consider a variant of the RR scheduling algorithm where the entries in the ready queue are pointers to the PCBs.a. What would be the effect of putting two pointers to the same process in the ready queue?b. What would be the major advantages and disadvantages of this scheme?c. How would you modify
Consider a system running ten I/O-bound tasks and one CPU-bound task. Assume that the I/O-bound tasks issue an I/O operation once for every millisecond of CPU computing and that each I/O operation takes 10 milliseconds to complete. Also assume that the context switching overhead is 0.1millisecond
Consider a system implementing multilevel queue scheduling. What strategy can a computer user employ to maximize the amount of CPU time allocated to the user's process?
For what purposes is a long time horizon advisable when computing the VAR?
Explain why backtesting and capital adequacy lead to diametrically opposed choices for the confidence level and horizon.
What are three alternative approaches to measuring VAR and their benefits?
Is EVT the ideal solution for distributions that have extreme events not reflected in historical data?
List factors that result in a decrease in VAR assuming a normal distribution.
What are the Basel Committee requirements for the confidence level, trading day horizon, length of historical data, and frequency of data update (monthly, quarterly, yearly?), respectively, for VAR calculation purposes?
Consider a portfolio position of $10 million on which returns are assumed to be normally distributed with a current standard deviation of 20 percent per annum. The average VAR on the previous 60 days is $320,000. What is the minimum market-risk charge?
The first known correct software solution to the critical-section problem for two processes was developed by Dekker. The two processes, P0 and P1, share the following variables: boolean flag[2]; /* initially false */int turn;The structure of process Pi (i == 0 or 1) is shown in Figure 6.25; the
Show how to implement the wait() and signal() semaphore operations in multiprocessor environments using the Test And Set() instruction. The solution should exhibit minimal busy waiting.
Demonstrate that monitors and semaphores are equivalent insofar as they can be used to implement the same types of synchronization problems.
Write a bounded-buffer monitor in which the buffers (portions) are embedded within the monitor itself.
The strictmutual exclusion within a monitor makes the bounded-buffer monitor of Exercise 6.13 mainly suitable for small portions. a. Explain why this is true. b. Design a new scheme that is suitable for larger portions.
Discuss the tradeoff between fairness and throughput of operations in the readers-writers problem. Propose a method for solving the readers writers problem without causing starvation.
How does the signal() operation associated with monitors differ from the corresponding operation defined for semaphores?
Suppose the signal() statement can appear only as the last statement in a monitor procedure. Suggest how the implementation described in Section 6.7 can be simplified.
Consider a system consisting of processes P1, P2, ..., Pn, each of which has a unique priority number. Write a monitor that allocates three identical line printers to these processes, using the priority numbers for deciding the order of allocation.
A file is to be shared among different processes, each of which has a unique number. The file can be accessed simultaneously by several processes, subject to the following constraint: The sum of all unique numbers associated with all the processes currently accessing the file must be less than n.
The first known correct software solution to the critical-section problem for n processes with a lower bound on waiting of n − 1 turns was presented by Eisenberg and McGuire. The processes share the following variables:enum pstate {idle, want in, in cs};pstate flag[n];int turn;All the elements of
When a signal is performed on a condition inside amonitor, the signaling process can either continue its execution or transfer control to the process that is signaled. How would the solution to the preceding exercise differ with the two different ways in which signaling can be performed?
Suppose we replace the wait() and signal() operations of monitors with a single construct await(B), where B is a general Boolean expression that causes the process executing it to wait until B becomes true.a. Write a monitor using this scheme to implement the readers- writers problem.b. Explain
Write a monitor that implements an alarm clock that enables a calling program to delay itself for a specified number of time units (ticks). You may assume the existence of a real hardware clock that invokes a procedure tick in your monitor at regular intervals.
Why do Solaris, Linux, and Windows 2000 use spinlocks as a synchronization mechanism only on multiprocessor systems and not on single processor systems?
In log-based systems that provide support for transactions, updates to data items cannot be performed before the corresponding entries are logged. Why is this restriction necessary?
Show that the two-phase locking protocol ensures conflict serializability.
What are the implications of assigning a new timestamp to a transaction that is rolled back? How does the system process transactions that were issued after the rolled-back transaction but that have timestamps smaller than the new timestamp of the rolled-back transaction?
Assume that a finite number of resources of a single resource type must be managed. Processes may ask for a number of these resources and -once finished-will return them. As an example, many commercial software packages provide a given number of licenses, indicating the number of applications that
The decrease count() function in the previous exercise currently returns 0 if sufficient resources are available and -1 otherwise. This leads to awkward programming for a process that wishes obtain a number of resources: while (decrease count(count) == -1) ; Rewrite the resource-manager code
What is the meaning of the term busy waiting? What other kinds of waiting are there in an operating system? Can busy waiting be avoided altogether? Explain your answer.
Explain why spinlocks are not appropriate for single-processor systems yet are often used in multiprocessor systems.
Explain why implementing synchronization primitives by disabling interrupts is not appropriate in a single-processor system if the synchronization primitives are to be used in user-level programs.
Explain why interrupts are not appropriate for implementing synchronization primitives in multiprocessor systems.
Describe how the Swap() instruction can be used to provide mutual exclusion that satisfies the bounded-waiting requirement.
Servers can be designed to limit the number of open connections. For example, a server may wish to have only N socket connections at any point in time. As soon as N connections are made, the server will not accept another incoming connection until an existing connection is released. Explain how
Show that, if the wait() and signal() semaphore operations are not executed atomically, then mutual exclusion may be violated.
Define backtesting and exceptions.
A bank reports 6 exceptions to its 99 percent VAR over the last year (252 days), including 4 that follow another day of exception. Compute the likelihood-ratio tests, and discuss whether unconditional and conditional coverage is rejected.
The Berkowitz and O'Brien study indicates that bank are conservative, that is, generate VAR forecasts that are too large in relation to actual risks. What could explain this observation?
How is type 1 error different from type 2 error for a decision rule? Explain the meaning of these errors for backtesting the trading book of a bank. Can both errors be avoided?
For a fixed type 1 error rate, how can a test minimize the probability of a type 2 error?
Say that a bank reports 9 exceptions to its 99 percent daily VAR over the last year (252 days). Give two interpretations of this observation.
Backtesting is usually conducted on a short horizon, such as daily returns. Explain why.
Why is it useful to consider not only unconditional coverage but also conditional coverage?
Consider the traffic deadlock depicted in Figure 7.1. a. Show that the four necessary conditions for deadlock indeed hold in this example. b. State a simple rule for avoiding deadlocks in this system.
We can obtain the banker's algorithm for a single resource type from the general banker's algorithm simply by reducing the dimensionality of the various arrays by 1. Show through an example that the multiple-resource- type banker's scheme cannot be implemented by individual application of the
Consider the following snapshot of a system:
Answer the following questions using the banker's algorithm: a. What is the content of the matrix Need? b. Is the system in a safe state? c. If a request from process P1 arrives for (0, 4, 2, 0), can the request be granted immediately?
A single-lane bridge connects the two Vermont villages of North Tunbridge and South Tunbridge. Farmers in the two villages use this bridge to deliver their produce to the neighboring town. The bridge can become deadlocked if both a northbound and a southbound farmer get on the bridge at the same
Modify your solution to Exercise 7.15 so that it is starvation-free.
Consider thedeadlock situation that could occur in the dining-philosophers problem when the philosophers obtain the chopsticks one at a time. Discuss how the four necessary conditions for deadlock indeed hold in this setting.Discuss how deadlocks could be avoided by eliminating any one of the four
Compare the circular-wait schemewith the deadlock-avoidance schemes (like the banker's algorithm) with respect to the following issues: a. Runtime overheads b. System throughput
In a real computer system, neither the resources available nor the demands of processes for resources are consistent over long periods (months). Resources break or are replaced, new processes come and go, new resources are bought and added to the system. If deadlock is controlled by the banker's
Consider a system consisting of four resources of the same type that are shared by three processes, each of which needs at most two resources. Show that the system is deadlock-free.
Consider the dining-philosophers problem where the chopsticks are placed at the center of the table and any two of them could be used by a philosopher. Assume that requests for chopsticks are made one at a time. Describe a simple rule for determining whether a particular request could be satisfied
Consider the same setting as the previous problem. Assume now that each philosopher requires three chopsticks to eat and that resource requests are still issued separately. Describe some simple rules for determining whether a particular request could be satisfied without causing deadlock given the
An investor holds a position that includes $100,000 invested in a 10-year Canadian government bond futures contract (CGB) and $100,000 invested in a Canadian stock index futures contract (SXF). Their annual volatility is 5 and 20 percent, respectively, with a correlation of "0.50. Assume that
VAR is claimed not to be a coherent risk measure. Explain the meaning of this term and whether this criticism applies to normal distributions.
What is the relationship between marginal VAR and incremental VAR?
On average, what is the relationship between component VAR and individual VAR for a particular position?
Explain the difference between internal and external fragmentation.
Why are segmentation andpaging sometimes combined into one scheme?
Explain why it is easier to share a reentrant module using segmentation than it is to do so when pure paging is used.
Consider the following segment table:What are the physical addresses for the following logical addresses? a. 0,430 b. 1, 10 c. 2,500 d. 3,400 e. 4,112
What is the purpose of paging the page tables?
Consider the hierarchical paging scheme used by the VAX architecture. How many memory operations are performed when an user program executes a memory load operation?
Compare the segmented paging scheme with the hashed page tables scheme for handling large address spaces. Under what circumstances is one scheme preferrable over the other?
Consider the Intel address translation scheme shown in Figure 8.22.a. Describe all the steps that the Intel 80386 takes in translating a logical address into a physical address.b. What are the advantages to the operating system of hardware that provides such complicated memory translation
Consider the following process for generating binaries. A compiler is used to generate the object code for individual modules, and a linkage editor is used to combine multiple object modules into a single program binary. How does the linkage editor change the binding of instructions and data to
Given five memory partitions of 100 KB, 500 KB, 200 KB, 300 KB, and 600 KB (in order), how would each of the first-fit, best-fit, and worst-fit algorithms place processes of 212 KB, 417 KB, 112 KB, and 426 KB (in order)?Which algorithm makes the most efficient use of memory?
Most systems allow programs to allocate more memory to its address space during execution. Data allocated in the heap segments of programs is an example of such allocated memory. What is required to support dynamic memory allocation in the following schemes:a. Contiguous-memory allocationb. Pure
Compare the main memory organization schemes of contiguous-memory allocation, pure segmentation, and pure paging with respect to the following issues: a. External fragmentation b. Internal fragmentation c. Ability to share code across processes
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