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A due diligence specialist is evaluating the risk management process of a hedge fund in which his company is considering making an investment. Which of the following statements best describes criteria used for such an evaluation?
A
Because of the overwhelming importance of tail risk, the company should not invest in the fund unless it fully accounts for fat tail using extreme value theory at the 99.99% level when estimating VaR.
B
Today's best practices in risk management require that a fund employ independent risk service providers and that these service providers play important roles in risk-related decisions.
C
When considering a leveraged fund, the specialist should assess how the fund estimates risks related to leverage, including funding liquidity risks during periods of market stress.
D
It is crucial to assess the fund's valuation policy, and in general if more than 10% of asset prices are based on model prices or broker quotes, the specialist should recommend against investment in the fund regardless of other information available about the fund.
