11. Which of the following statements are correct?

(i) The main alternative to historical simulation for calculating VaR and ES is the model-building approach (also referred to as the variance-covariance approach). The model building approach makes assumptions about the probability distributions of the % changes on the market variables.

(ii) Variables such as interest rates and credit spreads are described by term structures. The term structure shows the value of the variable as a function of time to maturity.

(iii) One approach to handling the risk arising from groups of correlated market variables is principal components analysis. The aim of principal components analysis is to replace the n variables by a smaller number of uncorrelated variables.

Select one:

a.

(i) and (iii)

b.

(i) and (ii)

c.

(ii) and (iii)

d.

All three statements are correct