medium · FRM Part 1 Valuation and Risk Models
A risk manager observes that a 1-day Historical Simulation VaR at 99% confidence is $1 million.
If the manager scales this to a 10-day VaR using the √(10) rule, what assumption is being made?
- That the portfolio's underlying assets exhibit purely linear payoffs across the full range.
- That the VaR distribution being scaled by the square-root rule is fundamentally non-parametric in nature.
- That the historical P&L outcomes are independent and identically distributed (i.i.d.) over time.
- That the Historical Simulation look-back window is sufficiently long to genuinely capture full 10-day cycles.
Sign up free to see the explanation and track your rank →
More FRM Part 1 Valuation and Risk Models practice
- What is the Expected Loss (EL)?
- If a loan has a Probability of Default (PD) of 2.0%, an Exposure at Default (EAD) of $1,00
- If market yields rise by 150 basis points (0.015), what is the estimated new price of the
- A stock trades at S_0 = $100. A European call struck at K = $100 expires in 1 year. If the
- If the manager scales the VaR to a 10-day horizon using the square-root-of-time rule, what
- An investor holds a $10 million portfolio of two assets. Asset A has a weight of 60% and a
- Using a simple 'credit-triangle' approximation, what is the fair annual CDS spread in basi
- If the exposure at default (EAD) is $1 million, what is the unexpected loss (UL) assuming