Skip to content

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

A risk analyst compares through-the-cycle (TTC) and point-in-time (PIT) PD estimates for a portfolio during a sharp economic downturn. Which statement is most accurate?

Point-in-time PDs respond to current conditions and increase in a downturn, whereas through-the-cycle PDs are averaged across the cycle and remain comparatively stable. This is why PIT measures are more procyclical.

  1. APIT PDs rise in the downturn, while TTC PDs stay relatively stable across the cycleCorrect
  2. BTTC PDs rise more than PIT PDs because they use current macro data
  3. CBoth measures are identical when ratings are based on financial ratios
  4. DPIT PDs remain stable because they average over a full cycle

Explanation

PIT PDs reflect current conditions and so are procyclical, rising in a downturn. TTC PDs average over a full cycle and are comparatively stable. The options reversing this describe the wrong measure.

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