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Answer: I, II and IV.
## Explanation Let's analyze each statement: **I. Stress tests tend to analyze a shorter period of time compared to EC methods.** - **Not correct**: Stress tests typically analyze longer time horizons (days to weeks) while EC methods use shorter time horizons (typically 1 year). **II. Stress tests tend to compute losses from the perspective of the market as opposed to EC methods that compute losses from an accounting perspective.** - **Not correct**: Both stress tests and EC methods typically use market-based valuations, not accounting perspectives. **III. Stress tests tend to use ordinal rank arrangements, while EC methods use cardinal probabilities.** - **Correct**: Stress tests use ordinal rankings (e.g., worst-case scenarios) while EC methods use cardinal probabilities (e.g., 99.9% VaR). **IV. Stress tests tend to focus on unconditional scenarios, which EC methods tend to focus on conditional scenarios.** - **Not correct**: Actually, stress tests focus on conditional scenarios (what if certain events occur) while EC methods focus on unconditional scenarios (overall risk distribution). Therefore, statements I, II, and IV are not correct, making option D the correct answer.
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Which of the following statements regarding differences between stress tests and economic capital (EC) methods is (are) not correct? I. Stress tests tend to analyze a shorter period of time compared to EC methods. II. Stress tests tend to compute losses from the perspective of the market as opposed to EC methods that compute losses from an accounting perspective. III. Stress tests tend to use ordinal rank arrangements, while EC methods use cardinal probabilities. IV. Stress tests tend to focus on unconditional scenarios, which EC methods tend to focus on conditional scenarios.
A
I and II only.
B
I, II and III.
C
II only.
D
I, II and IV.