Answer: Historic returns are adjusted, and the VaR calculation procedure is the same.

## Explanation Volatility-weighting is a technique used in historical simulation VaR where historical returns are adjusted to reflect current market volatility conditions. **Key points about volatility-weighting:** - **Historic returns are adjusted**: The historical returns are scaled by the ratio of current volatility to historical volatility - **VaR calculation procedure remains the same**: After adjusting the historical returns, the VaR calculation follows the same procedure as standard historical simulation - the adjusted returns are sorted and the appropriate percentile is selected **Why other options are incorrect:** - **Option A**: While historic returns are adjusted, the VaR calculation procedure is NOT more complicated - it follows the same basic methodology - **Option C & D**: Volatility-weighting adjusts HISTORIC returns, not current period returns **Mathematical representation:** Adjusted return = Historical return × (Current volatility / Historical volatility) This approach helps address the issue of changing volatility regimes in financial markets while maintaining the non-parametric nature of historical simulation.

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