8008 Exam Dumps | A risk analyst attempting to model the tail of a loss distribution using EVT divides the available dataset

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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition
PRMIA.8008.v2021-08-28.q125
Question 26

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Question 26/125

A risk analyst attempting to model the tail of a loss distribution using EVT divides the available dataset into blocks of data, and picks the maximum of each block as a data point to consider.
Which approach is the risk analyst using?

A. Block Maxima approach

B. Peak-over-thresholds approach

C. Expected loss approach

D. Fourier transformation

Correct Answer: A

Explanation
The risk analyst is using the block maxima approach. The data points that result will then be used to fit a GEV distribution.
Expected shortfall refers to the expected losses beyond a specified threshold. The peaks-over-threshold approach is an alternative approach to the block maxima approach, and involves considering exceedances above a threshold. Fourier transformation is not relevant in this context, and is a non-sensical option.

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