In calculating the value at risk (VAR) of fixed-income securities in the RiskMetrics model

Question

Quizplus · Accepted Answer

In the RiskMetrics model, the value at risk (VAR) of fixed-income securities is calculated based on the assumption that yield changes are normally distributed, and that price volatility can be expressed as the product of modified duration and the adverse yield change. There is no direct relation between VAR and DEAR (Duration and Effective Annual Rate), so A is incorrect. Therefore, the correct answer is E, which includes the two statements that are true.

In Calculating the Value at Risk (VAR) of Fixed-Income Securities