Explanation:
The hybrid VaR estimating methodology is a combination of parametric and nonparametric methods. The employee’s method of estimating VaR by using historical simulations (nonparametric method) to estimate the percentile of the returns and using exponentially declining weights (parametric method) on past data is an example of a hybrid methodology.
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Q.90 An employee at a large Wall Street bank is estimating the 5% VaR of a specific asset by using historical simulations to estimate the percentile of returns and using exponentially declining weights on past data. This methodology is most likely an example of:
A
Parametric VaR estimating
B
Nonparametric VaR estimating
C
Implied Volatility VaR estimating
D
Hybrid VaR estimating
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