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Financial Risk Manager Part 2

Financial Risk Manager Part 2

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A bank's model validation team is in the process of conducting a backtest of the institution's Value at Risk (VaR) model. As they prepare for the backtest, a team member expresses concern about the possibility of committing either a Type I error or a Type II error during the validation process. The team member then outlines the characteristics of these errors for the group. Can you explain the proper understanding of Type I and Type II errors in this context?

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