Financial Risk Manager Part 2
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A newly hired risk analyst at a mid-size bank is assisting in backtesting the bank's VaR model. Currently, the 1-day VaR is estimated at the 95% confidence level but the bank is considering a change to estimating 1-day VaR at the 99% confidence level, as recommended in the Basel framework. Which of the following statements concerning this change is correct?
A newly hired risk analyst at a mid-size bank is assisting in backtesting the bank's VaR model. Currently, the 1-day VaR is estimated at the 95% confidence level but the bank is considering a change to estimating 1-day VaR at the 99% confidence level, as recommended in the Basel framework. Which of the following statements concerning this change is correct?
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The decision to accept or reject a VaR model based on the results of a backtest that uses a two-tailed 95% confidence level is less reliable when applied to a 99% VaR model than when applied to a 95% VaR model.
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