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Answer: Linear approximation VaR is always higher
**Explanation:** The solution states: "The VaR will always be higher under the linear approximation method than a full revaluation conducted by Monte Carlo simulation analysis." **Reason:** Linear approximation (delta-normal method) assumes a linear relationship between portfolio value and risk factors, which tends to overestimate VaR because it doesn't account for non-linear effects like gamma (convexity) that can reduce risk. Full revaluation Monte Carlo simulation provides a more accurate estimate by capturing the actual non-linear behavior of the portfolio.
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Q-79. How does the VaR calculated using linear approximation compare to VaR calculated using full revaluation Monte Carlo simulation?
A
Linear approximation VaR is always higher
B
Linear approximation VaR is always lower
C
They are always equal
D
It depends on the portfolio composition
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