hard · Frm Part 2 Market Risk
A bank's internal VaR model at the 99% confidence level produces 7 exceptions over 250 days. The exceptions occurred on the following days: 12, 13, 15, 154, 155, 156, and 157.
Which statement correctly evaluates the model's performance according to the Christoffersen and Basel frameworks?
- The model passes the unconditional coverage test because 7/250 is not statistically different from 0.01 at the 95% confidence level.
- The Basel framework automatically imposes the maximum 0.85 multiplier increase because the exceptions are clustered.
- The model is in the Basel Green Zone because the total count of 7 is less than the 10 required for the Red Zone.
- The model is in the Basel Yellow Zone and likely fails the Christoffersen independence test due to clustering.
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