2016-FRR Exam Dumps | In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses

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GARP.2016-FRR.v2024-09-09.q145
Question 24

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Question 24/145

In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of the following explains this two-step methodology?

A. After VaR is computed at the 97% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 99% confidence level.

B. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 98% confidence level.

C. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 99% confidence level.

D. After VaR is computed at the 1% confidence level, the expected tail loss in excess of that confidence level is determined, which and is then compared with the VaR estimate at the 98% confidence level.

Correct Answer: C

JPMorgan Chase's expected tail-loss methodology in VaR calculations involves:
* First, computing VaR at the 99% confidence level.
* Then, determining the expected tail loss in excess of that confidence level, which is then compared with the VaR estimate at the 99% confidence level.
This approach helps in understanding the potential extreme losses that might occur beyond the 99% confidence threshold.

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