A disadvantage of the historic or back simulation model for quantifying market risk includes

Question

Quizplus · Accepted Answer

The historic or back simulation model uses past returns to estimate future risk, which assumes that past returns are relevant to current market returns. However, this may not always be the case, especially in rapidly changing markets, making the model less accurate. Choices A, B, and D are not correct as the historic or back simulation model requires the calculation of standard deviation and correlation between asset returns and accounts for non-standard return distributions.

A Disadvantage of the Historic or Back Simulation Model for Quantifying