The skewness of ABC company's stock returns equal -1.5.
What is the correct interpretation of this?

It indicates higher relative probability of negative returns compared to estimates derived from a normal distribution.
It indicates that the returns are indeed normally distributed.
It indicates lower probability of extreme negative events compared to the normal distribution.
It indicates higher relative probability of extreme events than non-extreme events compared to estimates from a normal distribution.

Answer(s): A

Which one of the four following activities is NOT a component of the daily VaR computing process?

Answer(s): B

Which of the following statements represents a methodological difference between variance-covariance and full revaluation methods?

Variance-covariance approach provides computational advantages over the full revaluation approach.
Variance-covariance approach computes the VAR for each position separately, while the full revaluation method computes the VAR on a portfolio basis.
Variance-covariance approach prices positions more accurately than the full revaluation approach.
Variance-covariance approach uses only historic data to compute the covariance matrix.

Answer(s): A

Which one of the four following statements about back testing the VaR models is correct?
Back testing requires

Plotting VaR forecasts against the proportion of daily losses exceeding the average loss.
Comparing the predictive ability of VaR on a daily basis to the realized daily profits and losses.
Plotting the daily profit and losses along with the ranges predicted by VaR models
Determining the proportion of daily profits exceeding those predicted by VaR.

Answer(s): B

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