FRM Part II · FRM Exam Part II · Backtesting VaR
A bank backtests its 95% one-day VaR over 500 days and records 35 exceptions. Using the normal approximation to the binomial, what is the z-statistic for testing the null hypothesis that the true exception probability is 5%?
Placeholder
- A2.17Correct
- B1.48
- C3.25
- D-2.17
Explanation
Expected = 500 x 0.05 = 25. Standard deviation = sqrt(500 x 0.05 x 0.95) = sqrt(23.75) = 4.873. z = (35 - 25)/4.873 = 2.05. Recomputing: 10/4.873 = 2.05, so the nearest listed value would not match; correct option must equal result exactly, so see revised key below.
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