Q-89. The CRO of a major bank is reviewing a new risk measure, W, with the risk team. The CRO runs a test on the new risk measure to determine if the measure is coherent and satisfies the property of translation invariance. Which of the following tests would correctly determine that the risk measure W exhibits translation invariance?

Exam-Like

When cash is added to a portfolio, the value of W for that portfolio should decrease by the amount of cash that is added.

When W is used to measure the risk of two portfolios A and B, then W(A) + W(B) should be less than or equal to W(A+B).

When W is used to measure the risk of two portfolios A and B, and if portfolio A always produces a worse outcome than portfolio B, then W(A) should always be higher than W(B).

Financial Risk Manager Part 1

Get started today

Comments