Which one of the following statements is a disadvantage of basing VaR calculations for a portfolio on historical data (historical simulation)?
A) Historical simulation is simple to implement.
B) Historical simulation is not based on assumptions about the “shape” of the loss distribution.
C) It is easy to incorporate all types of positions including derivatives positions in historical simulations.
D) Historical VaR is entirely determined by the data in the historical sample period.
D. Correct. Historical VaR is entirely determined by the data in the historical sample period.
Develop a comprehensive survey of the practice of Risk Management. The major types of risk are identified, risk management tools and techniques are reviewed and financial regulation is covered. Delegates will work through the annual risk report of a publicly traded financial institution. A number of case studies are analyzed to illustrate key principles of risk measurement and management.
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