medium · FRM Part 2 Market Risk
Which change in a backtesting protocol would most effectively decrease the probability of a Type II error without changing the sample size?
- Using Actual P&L figures in place of Hypothetical P&L data
- Decreasing the confidence level of the test (e.g., from 99% to 95%).
- Reducing the capital multiplier applied within the Yellow Zone band
- Raising the VaR confidence level from ninety-nine percent to 99.9 percent
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