8008 Leak Questions

The stresses on liquidity that happened as part of the credit crisis beginning 2007-08 led to drying up of trading and liquidity crisis in the corporate bond markets, the auction rate securities markets, the wholesale (interbank lending) markets, the money markets, the markets for structured products, and even the otherwise liquid futures and forwards markets (as there was no liquidity available to fund the financing of futures). The one market that was not affected was the market for treasuries, in fact the flight to quality ensured that this market was very liquid (even though stressed from a pricing perspective as yields plummetted).

Therefore Choice 'a' is the correct answer.

The peaks-over-threshold model is used when losses over a given threshold are recorded, as is often the case when using data based on external public sources where only large loss events tend to find a place. The generalized Pareto distribution is also used when attempting to model loss severity using EVT. Lognormal mixtures and generalized hyperbolic distributions are not used as extreme value distributions.

Choice 'd' is the correct answer.

According to ISDA standard definitions, the legal claim for OTC derivatives is the current replacement value of the contract. Therefore Choice 'c' is the correct answer. None of the other choices are correct.