Answer-first summary for fast verification
Answer: Seven zones with different plus factors.
## Explanation Under Basel II, the supervisory backtesting framework includes: - **Finding the number of exceptions** (Option B) - This is a core component where the number of times actual losses exceed VaR estimates is counted - **Extending over a 1-year period (250 trading days)** (Option C) - The backtesting is conducted over a minimum of one year of daily data - **A multiplier subject to a floor of three** (Option D) - The scaling factor for the market risk capital charge has a minimum value of 3 However, **Option A (Seven zones with different plus factors)** is **NOT** part of the Basel II backtesting framework. The Basel framework actually uses **three zones** (green, yellow, and red) rather than seven zones: - **Green zone**: 0-4 exceptions (no penalty) - **Yellow zone**: 5-9 exceptions (increasing penalties) - **Red zone**: 10+ exceptions (serious deficiencies) The seven-zone system with different plus factors is not part of the Basel II requirements for backtesting.
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The Basel II accord requires a supervisory backtesting framework with all of the following components except:
A
Seven zones with different plus factors.
B
Find out the number of exceptions.
C
Extends over a 1-year period (i.e., 250 trading days).
D
A multiplier that is subject to a floor of three.
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