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Answer: FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.
## Explanation Let's analyze each statement: **Statement A**: Correct. Both Basel I and Basel II.5 indeed require calculation of VaR with a 99% confidence interval. **Statement B**: Correct. FRTB replaces VaR with Expected Shortfall (ES) and requires calculation with a 97.5% confidence interval. **Statement C**: **Incorrect**. FRTB does NOT require adding a stressed VaR measure to complement the expected shortfall calculation. In fact, FRTB replaces the Basel II.5 framework which included both VaR and Stressed VaR. FRTB uses Expected Shortfall as the primary risk measure and incorporates stress testing through the use of stressed calibration periods, but it doesn't add a separate stressed VaR measure. **Statement D**: Correct. The 10-day time horizon for market risk capital under Basel I does incorporate a recent historical period, typically ranging from 1 to 4 years. Therefore, statement C is the incorrect one as FRTB does not require adding a stressed VaR measure to complement the expected shortfall calculation.
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Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?
A
Both Basel I and Basel II.5 require calculation of VaR with a 99% confidence interval.
B
FRTB requires the calculation of expected shortfall with a 97.5% confidence interval.
C
FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.
D
The 10-day time horizon for market risk capital proposed under Basel I incorporates a recent period of time, which typically ranges from one to four years.
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