medium · FRM Part 1 Quantitative Analysis
How does the Cornish-Fisher expansion adjust the Value-at-Risk (VaR) of a portfolio that exhibits significant positive excess kurtosis?
- It decreases the VaR estimate to reflect diversification of tail risk.
- It increases the VaR by pushing the critical quantile further into the tail.
- It leaves the VaR completely unchanged whenever the return distribution is symmetric.
- It replaces the standard deviation measure entirely with the mean absolute deviation figure.
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