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Valuation & Risk Models
Valuation & Risk Models
Easy
Which of the following is a primary limitation of using historical simulation to estimate Value at Risk (VaR)?
A
It assumes that the historical data period is representative of future risk, which may not hold during regime changes
B
It requires an assumption of normally distributed returns
C
It cannot incorporate fat tails or skewness in the return distribution
D
It requires estimation of the variance-covariance matrix for all portfolio positions
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Tags
#historical-simulation
#var
#risk-measurement
#limitations
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FRM Part I — Valuation & Risk Models Practice Question | AcadiFi | AcadiFi