Financial Risk Manager Part 1

Monte Carlo VaR is best for non-linear portfolios with significant option exposure because it can fully model the non-linear payoff structure and capture higher-order risks (gamma, vega) by simulating a wide range of market scenarios and revaluing the portfolio under each scenario. Delta-Normal VaR assumes linearity and normal returns which misstates option risk; Historical Simulation VaR may not capture extreme or future volatilities beyond the historical sample; Beta-adjusted VaR is meant for equity portfolios adjusted by beta and doesn't capture option non-linearities.