medium · Frm Part 2 Market Risk
An institutional portfolio has a 1-day VaR of $10m. A risk analyst uses the square-root-of-time rule to calculate a 10-day VaR of $31.6m.
In which scenario would this estimate most likely UNDERSTATE the true risk?
- The asset has limited liability (e.g., a long stock position).
- The returns exhibit positive autocorrelation (trending).
- The returns exhibit mean-reversion.
- The volatility of the asset is currently at its long-term average.
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