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FRM Part I Updated
How do I compute VaR for an FX position when my account base currency is different?
FX VaR should be computed from P/L translated into the account base currency, not just from the quoted pair return...
Are there standard horizons, percentiles, and lookback windows for VaR reports?
VaR horizons, confidence levels, and lookback windows are conventions tied to purpose rather than universal constants...
What does it mean when people say VaR is not subadditive?
VaR is not always subadditive, which means it can fail to reward diversification for certain lumpy loss distributions...
How do I choose the right time series for VaR on futures contracts?
Futures VaR depends on choosing a risk series that reflects roll behavior, liquidity, maturity, and seasonality...
How do volatility models fit into distribution-based VaR estimation?
Volatility models forecast conditional scale, while the return distribution controls the standardized shock and tail shape...
How does VaR mapping work for an FX forward?
FX forward VaR mapping decomposes the trade into spot FX and domestic and foreign rate risk factors...
Why can parametric VaR and Monte Carlo VaR disagree under a lognormal assumption?
Parametric and Monte Carlo VaR can differ when loss definitions, compounding, drift, or finite simulation error do not match...
Why do cross-gammas make delta-gamma VaR more complicated?
Cross-gammas capture second-order interaction between risk factors, which can matter in nonlinear multi-factor books...
Why is Expected Shortfall harder to estimate by simulation than VaR in heavy-tailed portfolios?
Expected Shortfall is simulation-sensitive because it averages extreme losses rather than only locating a quantile cutoff...
Why are overlapping returns tricky when estimating multi-day VaR?
Overlapping returns give more multi-day observations, but those observations are dependent and can overstate precision...
How should I think about VaR for a portfolio that includes options?
Option portfolio VaR often needs greek approximations or full revaluation because delta-neutral does not mean risk-free...
Why is time-scaling Cornish-Fisher VaR more delicate than scaling normal VaR?
Cornish-Fisher VaR is harder to scale because skewness and kurtosis do not behave like volatility under naive time scaling...
What is the simplest way to remember VaR and CVaR formulas across distributions?
VaR is a distribution quantile, while CVaR is the average loss beyond that quantile under the chosen tail convention...
What common mistakes show up in a Monte Carlo VaR implementation?
Monte Carlo VaR can fail through inconsistent returns, bad dependence inputs, and weak portfolio revaluation...
What are the core steps in a Monte Carlo VaR calculation?
Monte Carlo VaR builds a loss distribution by simulating scenarios, revaluing the portfolio, and reading a tail percentile...
When estimating tail risk, should I fit the whole return distribution or only the tail?
Tail risk estimation balances stable full-sample fitting against focused but noisier tail-only modeling...
How do historical, variance-covariance, and Monte Carlo VaR differ?
The three VaR methods differ by how they build the loss distribution: history, assumptions, or simulation...
Can I annualize Expected Shortfall with square-root-of-time the same way I annualize volatility?
Expected Shortfall does not scale as cleanly as volatility, so annualization depends heavily on distribution assumptions...
Why do desks still use Black-Scholes greeks for risk management when better models exist?
Black-Scholes greeks remain popular because they are a common operational risk language even when richer models are used elsewhere...
What is the intuition behind spectral risk measures, and why does Expected Shortfall fit in that family?
Spectral risk measures work by assigning weights to tail quantiles, and Expected Shortfall is one important member of that family...
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