Exam Code: 8007
Exam Name: Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition
Certification Provider: PRMIA
Corresponding Certification: PRM
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PRMIA 8007 Exam Syllabus Topics:

SectionObjectives
Simulation and Numerical Methods- Monte Carlo simulation
  • 1. Random number generation
    • 2. Risk distribution simulation
      Risk Measurement Techniques- Volatility and correlation
      • 1. Variance-covariance methods
        • 2. Correlation estimation techniques
          - Value at Risk (VaR)
          • 1. Historical simulation approach
            • 2. Parametric and non-parametric VaR
              Stochastic Processes and Time Series- Stochastic processes basics
              • 1. Markov processes
                • 2. Brownian motion (introductory level)
                  - Time series analysis
                  • 1. AR, MA, and ARMA models
                    • 2. Autocorrelation and stationarity
                      Probability and Statistics Foundations- Statistical inference
                      • 1. Estimation theory
                        • 2. Confidence intervals and hypothesis testing
                          - Random variables and probability distributions
                          • 1. Discrete and continuous distributions
                            • 2. Expectation, variance, and moments

                              PRMIA Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition Sample Questions:

                              1. If a time series has to be differenced twice in order to be transformed into a stationary series, the original series is said to be:

                              A) non-linear
                              B) differential
                              C) integrated of order 2
                              D) non-functional


                              2. Which statement regarding the matrix below is true?

                              A) It is negative definite
                              B) It is positive definite
                              C) It is not positive definite
                              D) It is positive semi-definite


                              3. For each of the following functions, indicate whether its graph is concave or convex:
                              Y = 7x2 + 3x + 9
                              Y = 6 ln(3x)
                              Y = exp(-4x)

                              A) convex, concave, concave
                              B) convex, convex, concave
                              C) concave, convex, convex
                              D) concave, concave, concave


                              4. Suppose 60% of capital is invested in asset 1, with volatility 40% and the rest is invested in asset 2, with volatility 30%. If the two asset returns have a correlation of -0.5, what is the volatility of the portfolio?

                              A) 36%
                              B) 20.78%
                              C) 26.33%
                              D) 36.33%


                              5. Which of the following can induce a 'multicollinearity' problem in a regression model?

                              A) The omission of a relevant explanatory variable
                              B) A high positive correlation between two explanatory variables
                              C) A large negative correlation between the dependent variable and one of the explanatory variables
                              D) A high positive correlation between the dependent variable and one of the explanatory variables


                              Solutions:

                              Question # 1
                              Answer: C
                              Question # 2
                              Answer: C
                              Question # 3
                              Answer: A
                              Question # 4
                              Answer: B
                              Question # 5
                              Answer: B

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