Question #1 of 9 Question ID: 1256937

A Type I error occurs when a risk model is:

A) accepted when it is accurate.

B) rejected when it is inaccurate.

C) accepted when it is inaccurate.

D) rejected when it is accurate.

Question #2 of 9 Question ID: 1256942

Which of the following causes for exceptions established by the Basel Committee would be

considered more serious so that a penalty should apply?

I. Model accuracy needs improvement.

II. Intraday trading activity.

III. Basic integrity of the model is lacking.

A) I and III.

B) I only.

C) II only.

D) II and III.

Question #3 of 9 Question ID: 1256938

You are backtesting a VaR model using analysing exceptions using failure rates. Which of the

following statements is (are) correct?

I. The probability of rejecting an accurate VaR model is a Type II error.

II. The probability of accepting an inaccurate model is a Type I error.

A) Neither I nor II.

B) II only.

C) I only.
D) Both I and II.

Question #4 of 9 Question ID: 1256939

In using a log-likelihood ratio to backtest a VaR model, the reason to measure the

conditional rather than the unconditional coverage of the model is to consider the:

A) the in uence of the positions of individual traders.

B) timing of exceptions.

C) size of the portfolio.

D) number of assets in the portfolio tested.

Question #5 of 9 Question ID: 1256940

The Kupiec log-likelihood ratio is used for:

A) estimating interest-rate spread volatility.

B) stress-testing VaR models.

C) backtesting VaR models.

D) estimating the delta-normal VaR of option portfolios.

Question #6 of 9 Question ID: 1256944

The Basel market risk charges require VaR to be computed over a horizon of:

A) at least three months.

B) one month or 21 trading days.

C) at least one year.

D) two calendar weeks or ten trading days.

Question #7 of 9 Question ID: 1256936

The process of comparing losses predicted by a VaR model to those actually experienced
over the test period is called:

A) authentication.

B) backtesting.

C) veri cation.

D) validation.

Question #8 of 9 Question ID: 1256943

Within the Basel penalty zones, which of the following multipliers would most likely apply to
a yellow zone with ve to nine exceptions?

A) 4.00.

B) 3.65.

C) 3.00.

D) 3.35.

Question #9 of 9 Question ID: 1256941

The International Bank has backtested its VaR models and has found four exceptions. Under
the Basel Committee Penalty Zone rules, how would this be classi ed and what would be the
associated VaR multiplier?

Classi cation VaR multiplier

A) Green zone Multiplier of 3

B) Yellow zone Multiplier greater than 3

C) Yellow zone Multiplier of 3

D) Green zone Multiplier greater than 3