Skip to content

FRM Part II · FRM Exam Part II · Credit Value at Risk

A bank's one-year portfolio has an expected loss of USD 12 million. The 99.9th percentile of the credit loss distribution is USD 150 million. Using the common definition of credit VaR as the unexpected loss at that percentile, what is the credit VaR?

Credit VaR relative to expected loss is the 99.9th percentile loss minus expected loss, so 150 minus 12 equals USD 138 million. The expected loss is covered by provisions and pricing, so capital addresses only the unexpected portion.

  1. AUSD 162 million
  2. BUSD 150 million
  3. CUSD 138 millionCorrect
  4. DUSD 12 million

Explanation

Credit VaR measured relative to the mean is the percentile loss minus expected loss: 150 - 12 = 138 million. Using 150 would be the absolute quantile, ignoring that expected loss is covered by provisions and pricing. Adding 12 is the wrong sign.

Did you get it right without looking?

One question tells you little. A timed set on Credit Value at Risk shows your real accuracy, how long you take and where you lose marks.

Practise Credit Value at RiskFree diagnostic mock

More Credit Value at Risk questions