A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

Question

Quizplus · Accepted Answer

RiskMetrics primarily focuses on estimating volatility and correlations to calculate Value at Risk (VaR) using a parametric approach, which does not directly provide a worst-case scenario number. Backtesting, on the other hand, involves simulating historical data to assess the performance of risk models, including identifying potential worst-case scenarios.

A Major Advantage Is That RiskMetrics Directly Provides a Worst-Case