medium · Frm Part 2 Market Risk
In a 99% daily VaR backtest over 250 days, a model records 8 exceptions.
According to the regulatory 'traffic light' system, which zone does this fall into and what is the consequence?
- Yellow Zone; supervisory plus-factor is applied to the capital multiplier.
- Yellow Zone; the model is automatically rejected without review.
- Red Zone; the model is presumed invalid and must be withdrawn.
- Green Zone; no change to the capital multiplier.
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