Financial Risk Manager Part 2
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Model validation requires a review of conceptual soundness of the model, which requires the validator to carefully examine the assumptions, techniques and data used by the model. Which of the following statements is correct regarding the important considerations in assessing the VaR model's conceptual soundness?
A
The core of model validation is to examine whether the model is suitable for the purpose it is developed for, and for VaR models the basic purpose is to enhance capital calculation methods.
B
The VaR model calculated based on actual Profit/Loss history would accurately, but not timely, reflect the change in portfolio risk once the positions are changed.
C
Incorporating positional information and recomputing the pseudo history of the change in the portfolio whenever the portfolio changes will produce a risk measure that can better capture the portfolio risk dynamic.