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Part II
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Market Risk
Market Risk
Easy
A bank uses 500-day historical simulation for its 99% VaR. On day 501, a large market crash that occurred exactly 501 days ago exits the rolling window, even though no portfolio changes were made. The bank's VaR most likely:
A
Decreases sharply, illustrating the ghost effect
B
Increases sharply due to the addition of a new observation
C
Remains unchanged since portfolio composition is constant
D
Becomes invalid because the window is too short
Select an answer to continue
Tags
#historical-simulation
#ghost-effect
#var-pitfalls
#rolling-window
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FRM Part II — Market Risk Practice Question | AcadiFi | AcadiFi