Chartered Financial Analyst Level 2
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An investor wants to determine the sensitivity of returns of the benchmark and risk parity portfolios. The investor performs two different Monte Carlo simulations:
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Simulation 1: Uses a multivariate normal distribution for the factor returns
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Simulation 2: Uses a multivariate Student's-t-distribution for the factor returns
Compared to Simulation 1, which of the following is most likely an advantage of Simulation 2?
An investor wants to determine the sensitivity of returns of the benchmark and risk parity portfolios. The investor performs two different Monte Carlo simulations:
-
Simulation 1: Uses a multivariate normal distribution for the factor returns
-
Simulation 2: Uses a multivariate Student's-t-distribution for the factor returns
Compared to Simulation 1, which of the following is most likely an advantage of Simulation 2?
Exam-Like
A
Simulation 2 requires fewer parameters to be estimated from historical data
B
Simulation 2 significantly reduces the number of required steps in the Monte Carlo simulation process
C
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