FRM一级易错题精选:Delta-normal and full-revaluation

Consider the delta-normal and full-revaluation approaches to estimatingthe VAR of non-linear derivative instruments.Which of the following is NOT a requirement for either the delta-normal or full-revaluation approach?
 
A.The VAR(1%)of the underlying asset is adjusted by a factor reflecting the price sensitivity of the derivative price to changes in the underlying asset price.
 
B.A second order adjustment is made to the underlying asset VAR(1%)to account for the non-linear relationship between the derivative and the underlying asset.
 
C.The VAR(1%)of the derivative is calculated by revaluing the derivative at the price corresponding to a VAR(1%)decline in the value of the underlying asset.
 
D.The VAR(1%)of the asset underlying the derivative is based on an assumed normal distribution.
 
FRM一级
 
Answer:D
 
The delta-normal approach to estimating the VAR of a non-linear derivative adjusts the VAR of the underlying asset for the delta(slope)and gamma(curvature)of the relationship between the derivative and the underlying.The VAR of the underlying asset can be calculated using parametric methods(assuming a normal distribution)or using historical methods(which does not assume a normal distribution).

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