medium · FRM Part 1
Which of the following best describes the conceptual difference between Marginal VaR and Incremental VaR when evaluating a potential new trade?
- Marginal VaR measures standalone risk, while Incremental VaR measures the diversified risk contribution to the portfolio.
- Incremental VaR is the sum of Component VaRs, while Marginal VaR is the unit-level version of that sum.
- Marginal VaR always exceeds Incremental VaR due to the non-linear effects of diversification.
- Marginal VaR is an infinitesimal derivative of portfolio risk, while Incremental VaR measures the change resulting from a discrete, finite position change.
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