Question 6 (Conceptual, 12 marks) (a) One type of model risk is that a right model is used in unintended contexts. Please give an example of this type of model risk. How should you hedge against this type of model risk? (4 marks) (b) Once a risk metric (e.g., VaR) is chosen, there are two kinds of mistakes that can be made in measuring risk. What are these two kinds of mistakes? (4 marks) (c) Do market participants extract different information from the two components of the U.S. stress test? Please briefly explain. (4 marks) Question 6 (Conceptual, 12 marks) (a) One type of model risk is that a right model is used in unintended contexts. Please give an example of this type of model risk. How should you hedge against this type of model risk? (4 marks) (b) Once a risk metric (e.g., VaR) is chosen, there are two kinds of mistakes that can be made in measuring risk. What are these two kinds of mistakes? (4 marks) (c) Do market participants extract different information from the two components of the U.S. stress test? Please briefly explain. (4 marks)