The approach to risk valuation that assumes that changes in value of the asset being considered are normally distributed is called the:
A)value neutral approach.
B)delta-normal approach.
C)normal distribution theory.
D)historical simulation theory.

Question

Quizplus · Accepted Answer

The delta-normal approach is the approach that assumes changes in the value of assets are normally distributed. This approach is commonly used in financial risk management to estimate the value at risk (VaR) by taking into account the price changes of underlying assets in a portfolio. Option A is incorrect as value neutral approach is not related to the distribution of changes in value of an asset. Option C is incorrect as it just refers to the normal distribution. Option D is incorrect as historical simulation theory is a method of estimating VaR that involves using historical data to simulate possible outcomes.

The Approach to Risk Valuation That Assumes That Changes in Value