medium · FRM Part 2 Market Risk
An institutional desk uses a historical-simulation (HS) approach to estimate Value at Risk (VaR). They are debating between basic equal-weighted HS and the Hull-White volatility-weighted refinement.
Which of the following is a unique capability of the Hull-White approach relative to basic HS?
- It implicitly embeds tail dependence across factors without needing a full correlation matrix.
- It can produce a VaR estimate that exceeds the maximum loss observed in the historical sample window.
- It eliminates the 'ghost effect', where old volatile data points abruptly drop out of the sample window.
- It guarantees the resulting VaR estimate is always strictly higher than the basic HS VaR across all market regimes.
Sign up free to see the explanation and track your rank →
More FRM Part 2 Market Risk practice
- Which of the following statements correctly identifies a structural deficiency of the Gaus
- If the shape parameter is ξ = 0.25, what is the tail index α?
- A leptokurtic distribution, often modeled by EVT, is characterized by which of the followi
- In the GPD framework, if the threshold u is chosen too low, what is the most likely error
- If a bank records 11 exceptions in a 250-day backtesting window for 99% VaR, what is the r
- A fund manager calculates the 'Marginal VaR' for an equity p… — What does this metric spec
- Which fixed-income mapping technique treats a bond portfolio as a single zero-coupon bond
- What happens to the mean of a GPD-distributed variable if the tail index ξ ≥ 1?