Back testing routinely compares daily profits and losses with model-generated

Back testing routinely compares daily profits and losses with model-generated risk measures to gauge the quality and accuracy of their risk measurement
systems.

The 1996 Market Risk Amendment describes the back testing frame work that is to accompany the internal models capital requirement. This back testing
framework involves

I. The size of outliers

II. The use of risk measure calibrated to a one-day holding period

III. The size of outliers for a risk measure calibrated to a 10-day holding period

IV. Number of outliers

A. II and III

B. II only

C. I and II

D. II and IV