
Ultimate access to all questions.
A team of risk assessment professionals is conducting an objective audit of a recently conducted stress test. During this audit, they are scrutinizing the models employed for the stress testing as well as the foundational assumptions of these models. From the options provided, identify the most critical flaw that the analysts should highlight regarding the models or their assumptions if such a flaw is detected during their review.
A
Relationships between core and peripheral variables in the model are found by regressing their past behavior during stressed market conditions only.
B
Credit risk losses are modeled by mapping historical default rate data provided by credit rating agencies to estimates of gross domestic product.
C
The stress test does not account for the likely responses of other financial institutions to changes in the core variables of the test.
D
A scenario used in the stress test was developed using reverse stress testing