easy · FRM Part 1 Quantitative Analysis
If an analyst says a return series has 'fat tails,' what does this imply for a risk model based on the normal distribution?
- The model's Value at Risk (VaR) will be exactly equal to Expected Shortfall (ES).
- The model will systematically understate the probability of extreme losses.
- The model will overstate the likelihood of returns near the mean.
- The model will provide overly conservative capital requirements.
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