In the context of managing a portfolio with a vast number of positions, which approach is the most effective for simplifying the computation of Value at Risk (VaR) by associating these numerous positions with a reduced set of core risk factors?

Exam-Like

USD/EUR forward contracts are mapped to the USD/EUR spot exchange rate.

46.7%

Each position in a corporate bond portfolio is mapped to the bond with the closest maturity among a set of government bonds.

13.3%

Zero-coupon government bonds are mapped to government bonds paying regular coupons.

26.7%

A position in the stock market index is mapped to a position in a stock within that index.

13.3%

Financial Risk Manager Part 2