WHICH OF THE FOLLOWING STATEMENTS ABOUT THE RISK MANAGEMENT IMPLIC...

19.

Which of the following statements about the risk management implications of this replacement is correct?

a.

Delta-normal VaR is more appropriate than historical simulation VaR for assets with non-linear payoffs.

b.

Changing the look-back period and weighing scheme from three years, equally weighted, to four years,

exponentially weighted, will understate the risk in the portfolio.

c.

The desk increased its exposure to model risk due to the potential for incorrect calibration and program-

ming errors related to the new model.

d.

A 95% VaR model that generates no exceedances in four weeks is necessarily conservative.

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2015 Financial Risk Manager (FRM®) Practice Exam