PRMIA 8010 Exam - Topic 1 Question 4 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 4
Topic #: 1

[All 8010 Questions]

Which of the following are valid criticisms of value at risk:

1. There are many risks that a VaR framework cannot model

2. VaR does not consider liquidity risk

3. VaR does not account for historical market movements

4. VaR does not consider the risk of contagion

A1, 2 and 4

B1 and 3

C2 and 4

DAll of the above

Show Suggested Answer

Suggested Answer: A

Risks such as abrupt changes to a firm's business model caused by legislation, or the introduction of capital controls in foreign countries where a firm in invested, geo-political risks etc are not modelable in the traditional sense. These risks cannot be modeled using VaR. Therefore statement I is correct.

VaR indeed does not consider liquidity risk, it is only concerned with the standard deviation of portfolio returns. Statement II is a valid criticism.

Statement III is not correct, as VaR can consider historical price movements.

Statement IV is correct, as VaR does not consider systemic risk or the risk of contagion.

by Sue at May 05, 2022, 01:07 AM

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Veronika

10 months ago

All of these criticisms are valid, for sure.

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Tarra

10 months ago

Wait, it doesn't account for contagion? That's wild!

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Rasheeda

10 months ago

I think it does consider historical movements, though.

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Val

10 months ago

Totally agree, liquidity risk is a big one!

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Jeannetta

10 months ago

VaR can't model all risks, that's a fact.

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Tonette

11 months ago

I recall that VaR does have limitations, but I’m confused about how it relates to historical market movements. Does it really not account for those?

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Frank

11 months ago

I practiced a question similar to this, and I think 1, 2, and 4 are definitely valid points against VaR.

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Cherilyn

11 months ago

I’m not entirely sure, but I think option D might be too broad. I feel like not all criticisms apply equally.

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Shayne

11 months ago

I remember discussing how VaR doesn't capture all types of risks, especially liquidity risk. That seems like a valid criticism.

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Diego

11 months ago

This one's pretty straightforward. Since the vendor promised full compatibility, I'd just go ahead and run the entire test suite. No need to mess around with partial testing - let's get it all done at once.

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Dewitt

11 months ago

Okay, I remember learning about job worth hierarchies in class. I believe the key is that they illustrate the relative value of different jobs within an organization, which then forms the basis for a salary structure. I'll go with option C on this one.

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Dottie

11 months ago

I'm not sure about this. The question seems to be implying that web-based communication is not essential, but I'm not sure if that means the statement is true or false.

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Quentin

11 months ago

The "From field" seems like the most logical choice here. That's usually the first thing I look at when deciding which emails to prioritize or read first.

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