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When managing a portfolio that contains a vast number of individual positions, it is essential to simplify and condense these positions into a smaller set of core risk factors to efficiently calculate the Value at Risk (VaR). Which one of the following mapping methods is best suited to achieve this reduction in complexity while maintaining the integrity of the risk assessment?
A
USD/EUR forward contracts are mapped to the USD/EUR spot exchange rate.
B
Each position in a corporate bond portfolio is mapped to the bond with the closest maturity among a set of government bonds.
C
Zero-coupon government bonds are mapped to government bonds paying regular coupons.
D
A position in the stock market index is mapped to a position in a stock within that index.