Question

Which of the following techniques is a more appropriate risk management tool for a company to...

Which of the following techniques is a more appropriate risk management tool for a company to examine how well a particular model for calculating a risk measure would have performed in the past?

Back-testing

Aggregating Expected Shortfall (ES)

Stressed VaR

Aggregating Value-at-risk (VaR)

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Answer #1

The correct answer is

Back testing

Back testing is something that is done to see how a particular model would have performed on the historical data.

Aggregate expected shortfall is a risk measure which is used to calculate the value of shortfall in portfolio at certain level in the worst-case scenario. Stressed VAR is a forward-looking measure of portfolio risk. Aggregating value at risk refers to the estimated amount of capital necessary to absorb losses that can happen due to change in market.

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