Question

1. Daily earnings at risk (DEAR) is defined as the dollar value of a position times...

1. Daily earnings at risk (DEAR) is defined as the dollar value of a position times price sensitivity of that position. TF question please explain.

2. The delta of an option is the sensitivity of an option's value to a unit change in the value of the underlying asset. TF question please explain.


8. When liquidity risk problems occur at a DI, they often threaten the solvency of the institution.

Homework Answers

Answer #1

1) False

Reason : DEAR (Daily earnings at risk) = Dollar value of position x Price volatility

Price volatility = Price sensitivity of position x potential adverse move in the yield

2) True

Delta represents rate of change between option's value and price of underlying. It shows how much value of option changes given 1$ change in price of underlying thus it measures sensitivity of option's value to unit change in the value of underlying asset

8) False

When liquidity risk problems occurs at depository institutions, theier solvency is not threaten

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