Which One of the Following Statements Regarding the Variance-Covariance Method

question 101

Multiple Choice

Which one of the following statements regarding the variance-covariance method for calculating value-at-risk is true?

• A) The volatilities of the underlying assets are normally distributed and the prices remain constant.
• B) The risk factors are normally distributed and volatilities of risk factors and correlations between risk factors are constant.
• C) The prices of underlying assets are normally distributed, the volatilities of risk factors follow a GARCH process and correlations between risk factors are constant.
• D) The returns of underlying assets are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

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