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Part II
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Market Risk Measurement and Management
Market Risk Measurement and Management
Hard
A risk analyst applies EVT Peaks-over-Threshold to 2,000 daily equity returns. The threshold is set at the 95th percentile of losses (120 exceedances), yielding GPD parameters xi = 0.25 and beta = 0.9%. The EVT-based 99.9% VaR is most likely:
A
Significantly higher than the normal VaR at the same confidence level, reflecting the fat-tailed nature of equity returns
B
Equal to the normal VaR because the GPD converges to the normal distribution for large samples
C
Lower than the normal VaR because EVT focuses only on extreme observations
D
Indeterminate without knowing the full return distribution
Select an answer to continue
Tags
#extreme-value-theory
#gpd
#tail-risk
#fat-tails
#var-comparison
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