Financial Risk Manager Part 1
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A risk analyst at a pension fund is using the historical simulation approach to calculate the 1-day ES of a portfolio of assets. The analyst begins by generating a set of 250 scenarios for the portfolio. Which of the following assumptions or procedures correctly describes the most appropriate way for the analyst to generate asset values for each of the scenarios used in the historical simulation?
A
Assume that a group of market variables change as they did during one of the days in a historical reference period, and apply these changes to the current values of these variables, which are then used to calculate asset values.
B
Assume that the values of the assets in the portfolio experience the same percentage change as they did during one of the days in a historical reference period.
C
Assume that a group of market variables has a multivariate normal distribution based on their movements during a historical reference period, and use a sampled value from this distribution to calculate asset values.
D
Assume that the values of the assets in the portfolio have a multivariate normal distribution based on their movements during a historical reference period, and then sample once from this distribution of asset values.