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To better understand the implications of implementing a new Value at Risk (VaR) model to replace an existing one, consider the following statement. Which one correctly encapsulates the effects observed after the replacement?
A
Delta-normal VaR is more appropriate than historical simulation VaR for assets with non-linear payoffs.
B
Changing the look-back period and weighting scheme from 3 years, equally weighted, to 4 years, exponentially weighted, will understate the risk in the portfolio.
C
Overnight examination by the junior analyst increased the desk's exposure to model risk due to the potential for incorrect calibration and programming errors.
D
A 99% VaR model that generates no exceedances in 6 weeks is necessarily conservative.
