FRM 2026 Part I Valuation and Risk Models Backtesting Free Quiz 1

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FRM 2026 Part I Valuation and Risk Models Backtesting Free Quiz 1

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FRM 2026 Part I Valuation and Risk Models Backtesting Free Quiz 1

Practice FRM 2026 Part I Valuation and Risk Models MCQs from Backtesting. Get instant results with Explanation.

General10 MCQs

1. What is backtesting?

A. Backtesting is only used for regulatory reportingB. Backtesting compares model predictions with actual outcomes to validate model performanceC. Backtesting is the same as stress testingD. Backtesting is not used in risk management

2. How is backtesting performed for VaR?

A. Backtesting VaR counts the number of days when VaR is positiveB. Backtesting VaR counts the number of days when returns are positiveC. Backtesting VaR counts the number of exceedances (losses exceeding VaR)D. Backtesting VaR does not involve counting exceptions

3. What is the expected number of exceptions for a VaR model?

A. Expected exceptions = (1-α) × NB. Expected exceptions = α × NC. Expected exceptions = (1-α) / ND. Expected exceptions = α / N

4. What is the binomial test in backtesting?

A. The binomial test is not used for backtestingB. The binomial test tests for normal distributionC. The binomial test is used for stress testingD. The binomial test is used to evaluate the statistical significance of exceptions in backtesting

5. What is the Basel traffic light system?

A. The Basel traffic light system has two zonesB. The Basel traffic light system has green, yellow, and red zones based on exception countsC. The traffic light system is not used for VaR backtestingD. The traffic light system applies to all risk models

General10 MCQs

6. What are the exception thresholds for the Basel traffic light system?

A. The green zone for 99% VaR is 0-5 exceptionsB. The yellow zone is 0-4 exceptionsC. The green zone is 0-4, yellow 5-9, red 10+ exceptions for 99% VaR over 250 daysD. The red zone is 0-4 exceptions

7. How does backtesting Expected Shortfall differ from backtesting VaR?

A. Backtesting ES is more challenging than VaR due to its nature as an averageB. Backtesting ES is simpler than VaRC. ES cannot be backtestedD. Backtesting ES is not required by regulators

8. What is the Kupiec test?

A. The Kupiec test is used for stress testingB. The Kupiec test is not used in backtestingC. The Kupiec test tests for normalityD. The Kupiec test is a likelihood ratio test for VaR accuracy based on exception frequency

9. What is the Christoffersen test?

A. The Christoffersen test only tests unconditional coverageB. The Christoffersen test tests both unconditional coverage and independence of exceptionsC. The Christoffersen test is not used for VaRD. The Christoffersen test is the same as the Kupiec test

10. Why is independence of exceptions important in backtesting?

A. Clustering of exceptions is not a concernB. Clustering indicates that the model overestimates riskC. Clustering of exceptions indicates the model does not capture time-varying riskD. Clustering is expected in a good model

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FRM

Conducting Body: Global Association of Risk Professionals GARP

Frequency: three times a year: May, August, and November | Time: 240 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 100 MCQs):

Foundations of Risk Management: 25 MCQs
Quantitative Analysis: 25 MCQs
Financial Markets and Products: 25 MCQs
Valuation and Risk Models: 25 MCQs

Merit Formula: -

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