In the RiskMetrics framework, what does DEAR (Daily Earnings at Risk) fundamentally measure?

Question

BlackTom AI · Accepted Answer

Question restatement: In the RiskMetrics framework, what does DEAR (Daily Earnings at Risk) fundamentally measure?

Available option:
- The potential loss on a position due to adverse price movements over one day at a specified confidence level

Analysis of the single provided option:
- The statement correctly identifies DEAR as measuring the potential loss across a single day arising from adverse price movements, evaluated at a specified confidence level. This aligns with the core concept of daily Value-at-Risk (VaR) used in the RiskMetrics framework, which focuses on the worst expected loss over a one-day horizon for a given probability level. The phrase “Daily Earnings at Risk” effectively mirrors “daily VaR” of earnings rather than a longer-term horizon, reinforcing the one-day focus.

Notes on the absence of other options:
- There are no additional answer choices provided to compare against. Consequently, we cannot assess which of the other statements might be true or false. In a typical multiple-choice setup, we would examine each distractor (e.g., statements about multi-day horizons, different risk measures, or inclusion/exclusion of interest, dividends, or diversification effects) to explain why they do or do not match the DEAR concept. Here, with only one option available, the evaluation is constrained to whether this statement correctly defines DEAR in the RiskMetrics context.

Conclusion pointers (implicit):
- The described definition matches DEAR’s essence as a one-day risk measure for potential earnings loss at a chosen confidence level, which is the standard interpretation within RiskMetrics for daily risk assessment.

BU.231.710.51.FA25 PoP Quiz - 1 (Week 4)

In the RiskMetrics framework, what does DEAR (Daily Earnings at Risk) fundamentally measure?

View Explanation

Log in for full answers

Similar Questions

A portfolio has an expected annual return of 10% and a standard deviation of 16.75%. What is the 1% (analytical) VAR of $100,000 in this portfolio?

When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the ____

A portfolio has an expected annual return of 10% and a standard deviation of 16.75%. What is the 1% (analytical) VAR of $100,000 in this portfolio?

When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the ____

Value at Risk (VaR) at a 95% confidence level for a one-day horizon of $2 million means:

What is the theoretical relationship between N-day VaR and 1-day VaR under the square root of time rule?

What is the main theoretical advantage of Historic Simulation over the RiskMetrics approach?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler