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QUESTION 3. 3.1) Discuss advantages and drawbacks of using Historical Simulation Methodology in computing VaR. (13.3 %) 3.2) You invest a portfolio and want to
QUESTION 3. 3.1) Discuss advantages and drawbacks of using Historical Simulation Methodology in computing VaR. (13.3 %) 3.2) You invest a portfolio and want to know the Value at Risk on this investment. You decide to use Historical Simulation Method to measure the Value at Risk based on the historical data series of daily returns on this portfolio for the past two years. There are total 500 numbers of daily observations in this data series. You are required to illustrate the assumption and the process of using Historical Simulation Method in computing Value at Risk under 99% confidence level and over 1-day, for this investment. (10 %) 3.3) Discuss how the backtesting is used to test the accuracy of VaR over 1-day and (10 %) (Total 33.3 %) under 95% confidence level. QUESTION 3. 3.1) Discuss advantages and drawbacks of using Historical Simulation Methodology in computing VaR. (13.3 %) 3.2) You invest a portfolio and want to know the Value at Risk on this investment. You decide to use Historical Simulation Method to measure the Value at Risk based on the historical data series of daily returns on this portfolio for the past two years. There are total 500 numbers of daily observations in this data series. You are required to illustrate the assumption and the process of using Historical Simulation Method in computing Value at Risk under 99% confidence level and over 1-day, for this investment. (10 %) 3.3) Discuss how the backtesting is used to test the accuracy of VaR over 1-day and (10 %) (Total 33.3 %) under 95% confidence level
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