VAR

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

VAR

Postby anbu.edu » Wed Oct 09, 2013 11:50 am

Delta-normal, historical simulation, and Monte Carlo are various methods available to compute VAR. If underlying returns are normally distributed, then
Choose one answer.
a. Delta-normal method VAR will be identical to the Monte Carlo VAR. Incorrect
b. Monte Carlo VAR will approach the delta-normal VAR as the number of replications (“draws”) increases. Correct
c. Monte Carlo VAR will be identical to the historical-simulation VAR. Incorrect
d. Delta-normal method VAR will be identical to the historical-simulationVAR. Incorrect
The correct answer is C: Monte Carlo VAR will approach the delta-normal VAR as the number of replications (“draws”) increases.
Infinite samples, the simulation methods will be in general different from the delta-normal method, and from each other. As the sample size increases, however, the Monte-Carlo VAR should converge to the delta-normal VAR when returns are normally distributed.

WHY CANT THE ANSWER BE D

vighnesh.mehta
Good Student
Posts: 16
Joined: Tue Sep 03, 2013 1:16 pm

VAR

Postby vighnesh.mehta » Sun Oct 13, 2013 6:32 am

You are right. Delta-normal method VAR will be identical to the historical-simulation VAR when the returns are normally distributed. Thanks for making note of this.


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