Value-at-Risk (VaR) is defined as the probability of suffering a loss in excess of a given threshold or confidence interval

PART 1 (60 Marks)
QUESTION 1: (~600words)
Value-at-Risk (VaR) is defined as the probability of suffering a loss in excess of a given threshold or confidence interval. Can you analyse and appreciate the existing VaR methodologies in terms of market
risk evaluation?
QUESTION 2: (~600words)
The Basel 2 Agreement defines Counterparty Credit
Risk (CCR) as the risk that the counterparty to a transaction could default
before the final settlement of the transaction’s cash flows. Do you think the
new Credit Value Adjustment (CVA) methodology is the most appropriate
approach to assess the CCR related to over-the-counter transactions?
PART 2(~ 1600 words)
You have been asked to write a financial risk brief
report for First National Bank’s senior management. Your work should both
address the bank’s potential concerns and questions, and take into account
the fact that your audience’s participants are NOT necessarily risk
management experts.
Your brief report will have to answer the following
questions:
Determine and analyse the bank’s liquidity risk
situation, between 2010 and 2011, by using traditional liquidity ratio
analysis, and evaluate its potential change with respect to the new Basel 3
approach of liquidity (See Exhibit 1, 2, and 3).
Total 100 marks