Financial Risk Manager Part 2
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In the context of the firm's Value at Risk (VaR) model, which was initially calculated at a 95% confidence level, and considering the Basel framework guidelines, which of the following statements correctly reflects the impact of adjusting to a 99% VaR confidence level as recommended by the newly hired risk analyst?
A
The decision to accept or reject a VaR model based on backtesting results at the two-tailed 95% confidence level is less reliable using a 99% VaR model than using a 95% VaR model.
B
The 95% VaR model is less likely to be rejected using backtesting than the 99% VaR model.
C
When backtesting using a two-tailed 90% confidence level test, there is a smaller probability of incorrectly rejecting a 95% VaR model than a 99% VaR model.
D
Using a 99% VaR model will lower the probability of committing both type 1 and type 2 errors.