One advantage of RiskMetrics over back simulation approach to measure market risk is that RiskMetrics provides a worst case scenario number.

Question

Quizplus · Accepted Answer

The statement is incorrect. RiskMetrics does not provide a worst case scenario number. It provides a measure of potential loss (VaR) based on historical data, which is an estimation and not an exact worst case scenario. Back simulation approach, on the other hand, involves simulating different scenarios to calculate potential losses, and could provide a worst case scenario.

One Advantage of RiskMetrics Over Back Simulation Approach to Measure