10-58 an Advantage of the Historic or Back Simulation Model

question 25

Multiple Choice

10-58 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 the above.

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Definitions:

Normal Random Variable

A variable that follows a normal distribution, characterized by its bell-shaped curve, where the mean, median, and mode are all equal.

Standard Normal Distribution

A probability distribution that has a mean of zero and a standard deviation of one, used in many areas of statistical analysis.

Symmetrically Distributed

A description of a data distribution where, on a graph, the left and right sides of the distribution are approximately mirror images of each other.

Normally Distributed

A type of continuous probability distribution characterized by a symmetrical, bell-shaped curve, where the mean, median, and mode are all equal.