A VaR models provide a precise measure of potential loss, leading to optimized capital allocation. B VaR models tend to underestimate risk due to their reliance on historical data, making them less reliable during market crises. C VaR models are overly conservative, resulting in excessive capital reserves and reduced trading opportunities. D VaR models accurately predict market downturns, ensuring firms are adequately capitalized during stress periods.

A Slippage can be mitigated by increasing trade size to overwhelm the order book. B Slippage is irrelevant in high-frequency trading due to the speed of execution. C Slippage is a significant risk that can be mitigated by using adaptive order placement algorithms like time-weighted average price (TWAP) and volume-weighted average price (VWAP). D Slippage is a minor concern that can be offset by using fixed spread trading strategies.

A Gamma Scalping increases exposure to delta risk, requiring constant adjustment of the underlying positions. B Gamma Scalping reduces risk by eliminating the need to hedge the options position. C Gamma Scalping limits risk exposure by maintaining a neutral gamma position across all trades. D Gamma Scalping increases theta risk but does not significantly impact the firm's overall risk exposure.

A Correlation risk enhances diversification by allowing for asset classes to move in opposite directions. B Correlation risk can lead to unintended concentration risk, especially in tail events, and can be managed using copula models or dynamic hedging strategies. C Correlation risk is negligible when assets are selected from different industries. D Correlation risk can be entirely mitigated by equal-weighting all portfolio positions.

A QT policies increase liquidity and leverage availability, making it easier for prop firms to expand their positions. B QT policies reduce liquidity and leverage, forcing prop firms to adopt more defensive strategies such as risk parity or tail risk hedging. C QT policies have no direct impact on prop trading firms, as they operate independently of central bank policies. D QT policies encourage prop firms to increase leverage to compensate for the reduced liquidity in the markets.