Financial Risk Manager Part 1
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Which one of the following is NOT a method of choosing a probability distribution for a simulation model?
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NNikitesh
A
Parameter estimate technique
B
Sampling technique
C
Best fit technique
D
Bootstrapping technique
Explanation:
The correct answer is B) Sampling technique.
Explanation:
There are four main methods for choosing a probability distribution in simulation models:
- Bootstrapping technique - Using resampling from existing data
- Parameter estimate technique - Estimating parameters from historical data
- Best fit technique - Fitting a distribution to historical data
- Subjective guess technique - Using expert judgment when data is limited
Sampling technique is not one of the recognized methods for choosing a probability distribution. Sampling refers to the process of drawing observations from an already chosen distribution, not the method for selecting which distribution to use in the first place.
This question tests understanding of simulation modeling techniques and the distinction between choosing distributions versus sampling from them.
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