225*confidence level

问题如下：

A risk manager is analyzing a 1-day 99% VaR model. Assuming 225 days in a year, what is the maximum number of daily losses exceeding the 1-day 99% VaR that is acceptable in a 1-year backtest to conclude, at a 95% confidence level, that the model is calibrated correctly?

选项：

A.3

B.5

C.8

D.10

解释：

The risk manager will reject the hypothesis that the model is correctly calibrated if the number x of losses exceeding the VaR is such that:

where p represents the failure rate and is equal to 1 – 99%, or 1%; andT is the number of observations = 225. And z = 1.96 is the two-tail confidencelevel quantile. If:

Then,x = 5.18. So the maximum number of exceedances would be 5 to conclude that themodel is calibrated correctly.