8008 Exam Dumps | Which of the following cannot be used to address the issue of heavy tails when modeling market returns

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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 119

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Question 119/125

Which of the following cannot be used to address the issue of heavy tails when modeling market returns

A. EVT

B. EWMA

C. Normal mixtures

D. Student's t-distribution

Correct Answer: B

Explanation
Normal mixtures, EVT and the t-distribution are all possible solutions addressing the issue of heavy tails in financial returns.
EWMA and GARCH address volatility clustering, which is the other problem when doing risk calculations.
Therefore Choice 'b' is the correct answer as EWMA is not used to address heavy tails but volatility clustering.

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