A matched book strategy involves matching every position with an offsetting position, effectively minimizing market risk. This strategy ensures that the bank's exposure to market fluctuations is neutralized, which is ideal for limiting risk exposure.

The Basel II Accord defines operational risk as the risk of loss resulting from inadequate or failed processes, people, and systems, or from external events. This definition encompasses a wide range of potential risks that banks must manage.

Major problems with correlation calculations include:
* I. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios, as correlations can change significantly during periods of market stress.
* II. Correlation estimates tend to be unstable, meaning they can vary widely over time and in different market conditions.
* III. Historical correlations may not forecast future correlations correctly, as past data may not always be indicative of future relationships.
IV is incorrect because correlation estimates do not inherently assume normally distributed returns, though the assumption of normality is often used in conjunction with correlation calculations.