Which of the following items is not considered to be an advantage of using back simulation over the RiskMetrics approach in developing market risk models?
A)Back simulation is less complex.
B)Back simulation creates a higher degree of confidence in the estimates.
C)Asset returns do not need to be normally distributed.
D)The correlation matrix does not need to be calculated.
E)A worst-case scenario value is determined by back simulation.

Question

Quizplus · Accepted Answer

Back simulation and RiskMetrics both have advantages and disadvantages. However, creating a higher degree of confidence in the estimates is not a specific advantage of using back simulation over the RiskMetrics approach. Both approaches aim to provide accurate estimates of market risk.

Which of the Following Items Is Not Considered to Be