An Advantage of the Historic or Back Simulation Model for Quantifying

question 53

Multiple Choice

An advantage of the historic or back simulation model for quantifying market risk includes

• A)calculation of a standard deviation of returns is not required.
• B)all return distributions must be symmetric and normal.
• C)the systematic risk of the trading positions is known.
• D)there is a high degree of confidence when using small sample sizes.
• E)None of these.

---

Definitions:

Financial Leverage

The use of borrowed funds with the goal to increase the potential return on investment.

Leveraged Firm

A company that uses debt along with equity to finance its assets, often resulting in higher potential returns but also higher risk.

ROE

Return on Equity, a financial ratio indicating the profitability of a corporation in relation to stockholders’ equity, showing how well the company uses investments to generate earnings growth.

EPS

Earnings Per Share, a company's profit divided by the number of outstanding shares of its common stock, indicating the company's profitability.