b. What is one pro and one con to the back-simulation approach in measuring market risk?...
b. What is one pro and one con to the back-simulation approach in measuring market risk? What can be used to deal with the disadvantage?
Homework Answers
Back simulation model is also known as historic approach model. The advantage of this model in measuring market risk is that it is simple and there is no necessity of calculating correlation and standard deviation of asset returns.
Disadvantage of this model is that it assumes that the historical pattern will repeat itself in future.
In order to deal with this situation, we need to take into consideration the present situation and also our analysis. This will help to overcome the shortcoming to some extent.
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b. What is one pro and one con to the back-simulation approach
in measuring market risk?...
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23) Which of the following statements is not true about historical simulation approach using weighing of...
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