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The CRO of a commodity trading firm is reviewing the hedging strategies used by the traders at the firm. The CRO notes that the traders often use dynamic hedging strategies to manage the price fluctuations of their positions and that they apply a wide-ranging limit system in controlling the hedging positions. Which of the following conclusions would the CRO most likely reach when reviewing the hedging strategies of the traders?
A
Stop loss limits are typically used to limit realized losses.
B
Concentration limits are very effective in capturing correlation risks during stressed market conditions.
C
VaR models are not affected by classic model risks, which are typically associated with traditional mathematical models.
D
Sensitivity tests are limited to measuring the change in value of derivatives.