Market Risk Analyst Interview Questions and Answers

VaR is a measure of potential loss in value of a portfolio over a specified time horizon at a given confidence level.

• VaR quantifies the maximum potential loss in value of a portfolio over a specified time horizon at a given confidence level.

• Historical simulation is a method of calculating VaR by using historical data to simulate potential future outcomes.

• VaR helps in assessing and managing market risk by providing an estimate of potential losses.

• It is commonly used in financi...read more

Assumptions of linear regression model

• Linearity: relationship between independent and dependent variable is linear

• Independence: residuals are independent of each other

• Homoscedasticity: variance of residuals is constant across all levels of independent variable

• Normality: residuals are normally distributed

• No multicollinearity: independent variables are not highly correlated with each other

Vega in swap valuation measures the sensitivity of the swap's value to changes in volatility.

• Vega is a risk measure that quantifies the impact of changes in implied volatility on the value of a swap.

• It is used to assess the risk associated with changes in market volatility.

• A higher Vega indicates that the swap's value is more sensitive to changes in volatility.

• Vega is particularly important for options and other derivative instruments.

• Calculating Vega involves taking the deri...read more

Option greeks are measures used to assess the sensitivity of an option's price to changes in various factors.

• Option greeks include Delta, Gamma, Theta, Vega, and Rho.

• Delta measures the change in option price for a $1 change in the underlying asset price.

• Gamma measures the rate of change of Delta.

• Theta measures the change in option price with the passage of time.

• Vega measures the change in option price for a 1% change in implied volatility.

• Rho measures the change in option pri...read more