Financial Risk Manager Part 2

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Q-55. A portfolio manager is mapping a fixed-income portfolio into exposures on selected risk factors. The manager is analyzing the comparable mechanics and risk measurement outputs of principal mapping, duration mapping, and cash-flow mapping that correspond to the average portfolio maturity. Which of the following is correct?

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Last updated: December 19, 2025 at 14:03

Principal mapping considers coupon and principal payments, and the portfolio VaR using principal mapping is greater than the portfolio VaR using cash-flow mapping.

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Duration mapping does not consider intermediate cash flows and the portfolio VaR using such method is less than the portfolio VaR using principal mapping.

Cash-flow mapping considers the timing of the redemption cash flow payments only, and the portfolio VaR using cash flow mapping is less than the portfolio VaR using duration mapping.

Cash-flow mapping considers the present values of cash flows grouped into maturity buckets, and the undiversified portfolio VaR using cash-flow mapping is greater than the portfolio VaR using principal mapping.