Known Limitations of VaR Methodology Include the Fact That Changes

question 345

Multiple Choice

Known limitations of VaR methodology include the fact that changes in market may not tend to normal distribution (specifically, that very large movements are more likely than predicated by the normal distribution assumption) ; BECAUSE:

• A) Correlation between market movement can vary (especially during periods of stress in the market)
• B) The changes in present values are not perfectly linearly related to changes market rates.
• C) The use of one day horizon does not fully capture the market risk of positions that cannot be liquidated in one day.
• D) All of these

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Definitions:

MR=MC

The condition where marginal revenue equals marginal cost, often used as the profit-maximizing point in economic analysis of firms.

Single Product

A business model focusing on the production or sale of one specific item or service.

Multiple Product

The offering or production of more than one type of product by a company.

Capacity Constraints

Limitations on the maximum output or production an organization can achieve due to current resources and operational capabilities.