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Q-50. Under these assumptions - in particular: a flat yield curve and constant yield volatility of 1.0% - why can we expect cash flow mapping to produce a lower diversified VaR than either duration and principal mapping?
A
The risk measures are non-linear.
B
Due to imperfect correlations between pairwise risk factors.
C
Fewer total cash flows will be mapped.
D
We cannot expect a lower diversified VaR.
