The situation
A desk records six exceptions in 250 matched daily observations for a 99% one-day VaR model. Four occur in the same week.
Your task
Compare observed and expected breaches and suggest a review.
Reveal step-by-step solution
Set up the problem
At 1% model exception probability, expected count = 250 × 0.01 = 2.5.
Work through the numbers
Observed rate = 6 ÷ 250 = 2.4%. The cluster suggests reviewing volatility dynamics and data.
Interpret the result
Check clean versus actual P&L and run formal coverage and independence diagnostics before deciding whether recalibration is needed.
What to remember
Evaluate breach count and timing. Keep forecast horizon and realized P&L aligned.