A risk manager is backtesting a firm’s model for estimating 1-day 99% VaR and observes five exceedances over the prior 150 trading days. Assuming the model is correctly calibrated, and all the exceedances are independent of each other, what is the probability that there are exactly six exceedances over a period of 250 trading days?
A risk manager is backtesting a firm’s model for estimating 1-day 99% VaR and observes five exceedances over the prior 150 trading days. Assuming the model is correctly calibrated, and all the exceedances are independent of each other, what is the probability that there are exactly six exceedances over a period of 250 trading days? A.0.84%; B.2.75%; C.36.97%; D.39.25%