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Part II
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Market Risk
Market Risk
Medium
A risk manager performs backtesting on a 99% VaR model using 250 trading days. The model produces 7 exceptions (days where actual losses exceeded the VaR estimate). Based on the Basel traffic light approach, this model falls in which zone?
A
Yellow zone, indicating the model may be inaccurate and a capital surcharge may apply
B
Green zone, indicating the model is performing within acceptable limits
C
Red zone, indicating the model is severely flawed and must be replaced
D
Green zone, because 7 exceptions out of 250 is below the 5% threshold
Select an answer to continue
Tags
#backtesting
#var
#basel-traffic-light
#model-validation
#market-risk
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