Explanation:
C is correct. VaR can be reverse engineered to understand where risk comes from using VaR tools.
A is incorrect. VaR systems cannot capture some risks due to the illiquid nature or short history of certain assets.
B is incorrect. VaR doesn’t increase the number of rogue trades. On the contrary, having a VaR system in place may discourage rogue traders.
D is incorrect. VaR can monitor investments in real-time.
Ultimate access to all questions.
A
VaR is a reliable and easily performed method to measure the riskiness of illiquid assets.
B
VaR systems can generate accurate market risk estimates but at the expense of making “rogue trading” easier.
C
VaR measures can help identify the different sources of an increase in total portfolio risk.
D
VaR systems can monitor the risk levels of investments at regular intervals but not in real time.
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