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Chartered Financial Analyst Level 2

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:

  • 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?

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