Explanation:
The credit rating of entities A and B is not required for the calculation of the 99% 1-day VaR of a portfolio using the Monte Carlo method. The credit rating is a measure of the creditworthiness of an entity and is typically used in credit risk management. However, in the context of market risk management, which is what VaR is used for, credit ratings are irrelevant. The VaR calculation is
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Q.3016 Which of the following inputs is NOT required in order to calculate the 99% Monte Carlo 1-day VaR of a portfolio made of two stocks A and B, assuming both stocks have normally distributed returns?
A
The correlation of the returns between A and B
B
The credit rating of entities A and B
C
The spot values of stocks A and B
D
Normally distributed random numbers
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