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One problem identified in the Long-Term Capital Management failure is model risk. Which of the following is NOT an element of model risk? A. The risk that historical correlations among asset class prices will increase sharply above predicted levels in periods of economic shock. B. The risk of incorrectly calculating VAR due to typographical error. C. The risk that low-frequency, high-severity events can become serially correlated (e.g., cluster in time). D. The risk that the tails of the assumed distributions underestimate the expected values of extreme losses. |