Financial Risk Manager Part 2
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An analyst at a commercial bank is evaluating how the bank applies historical simulation (HS) to estimate VaR and ES. The analyst focuses on the approaches used for weighting past return observations, including the age-weighted, volatility-weighted, correlation-weighted, and filtered HS approaches. Which of the following statements is correct regarding the given weighting approach?
An analyst at a commercial bank is evaluating how the bank applies historical simulation (HS) to estimate VaR and ES. The analyst focuses on the approaches used for weighting past return observations, including the age-weighted, volatility-weighted, correlation-weighted, and filtered HS approaches. Which of the following statements is correct regarding the given weighting approach?
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A
The age-weighted approach typically specifies that observations that occurred after the cutoff date are given an equal weight while observations that occurred before the cutoff date are given a weight of zero.
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