Inquiry A risk management expert is reviewing a set of quantile-quantile (Q-Q) plots that illustrate the empirical distribution of a portfolio's profit and loss percentiles against the percentiles from various theoretical reference distributions. The objective is to gain insights into the properties and characteristics of the actual distribution of the portfolio's profits and losses by using these Q-Q plots. Which of the following statements is correct regarding quantile-quantile diagrams?

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The tails of the empirical distribution are heavier than those of the reference distribution if the QQ plot has a steeper slope at its tails.

57.7%

QQ plots are used to smooth the empirical distribution by removing outliers through the use of quantiles.

11.5%

A distribution is considered a good reference distribution if data drawn from it produces a QQ plot that is non-linear in the central mass of the distribution.

15.4%

The primary purpose of a QQ plot is to measure the skewness and kurtosis of the empirical data.

15.4%

Financial Risk Manager Part 2

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