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.

---

Definitions:

Dreaming

The experience of envisioned images, sounds, or other sensations during sleep, often narrative in nature and occurring in REM sleep.

Empirical Support

Evidence that is based on observation, experience, or experiment, rather than theory alone, used to validate a hypothesis or claim.

Biological Rhythms

Natural cycles of change in our body's chemicals or functions, like the sleep-wake cycle or hormonal cycles.

Endogenous

Generated from within rather than by external cues.