Which of the following most accurately describes the relationship between computing internal capital requirements using a stress testing approach versus a value at risk (VAR) capital strength approach? Stress testing approaches:
| A) | are substitutes for VAR approaches since they better measure the entire spectrum of potential outcomes. |
| | B) | should never be used since they are based entirely on subjective inputs. |
| C) | complement VAR approaches since they account for scenarios that may not be properly considered in VAR approaches. |
| | D) | can never be combined with VAR approaches because they are based on different probability distributions. |
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Answer and Explanation
Since VAR often relies on common probability distributions, it may not properly capture extreme, but possible, events. Stress testing involves evaluating the effects that these events would have on the institution and then establishing capital requirement based on the findings. The two approaches are natural complements.
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发表于 2008-9-17 18:38
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