8. The portfolio you are analyzing has a few high magnitude loss events in the past. Which of

the following methods is not appropriate to estimate the VaR for this portfolio?

A) Historical simulation

B) Parametric GARCH, in which the shock is assumed to be standard normal

C) Filtered historical simulation

D) None of the above

9. A bank's 1% VaR over a one-day horizon is $10.0 million. The bank conducted a back-

test over the previous 500 trading days in order to ascertain, with 95% confidence, whether

the 1% VaR model is good or bad ("faulty"). It is assumed losses are i.i.d. Which back-

test observation would MOST LIKELY implicate the VaR model as bad (faulty) with 95% confidence?

A) Never (on no single day) did the daily loss exceed the $10.0 million VaR

B) Only once was the daily loss exactly $10.0 million

C) On exactly eight days the daily loss exceeded the $10.0 million VaR

D) The largest daily loss was over $50.0 million, which is more than 5 times the daily VaR

10. Which of the following statements is not correct in describing an AR(1) time series?

Xt = 0 +1Xt1 +t , |1| < 1

A) The autocorrelation of Xt at the first lag is 1

B) The partial autocorrelation of Xt at the first lag is 1

C) The partial autocorrelation of Xt at the second lag is ^2 1

D) Xt is stationary