Financial Risk Manager Part 2
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A junior risk analyst is asked to prepare a report comparing the various weighted historical simulation (HS) approaches. The analyst focuses on the ways the different HS approaches adjust the returns observed in the data set. Which of the following statements is correct for the analyst to make?
A
The correlation-weighted HS approach adjusts the return observations by multiplying each return by the current correlation divided by the historical correlation.
B
The filtered HS approach accommodates volatility clustering and allows positive and negative returns to impact volatility differently.
C
The volatility-weighted HS approach adjusts returns upward when the current volatility is below the long-term average volatility.
D
The age-weighted HS approach assumes that the value of the information contained in a return observation declines in a linear manner starting from the date it is first observed.