标题: Variance/Covariance Approach to VAR [打印本页] 作者: transferpricing 时间: 2011-7-11 19:09 标题: Variance/Covariance Approach to VAR
All of the following are considered to be weaknesses of the variance/covariance value at risk (VAR) methodology EXCEPT:
A) market data necessary to compute VAR is often not available.
B) the variance/covariance matrix may not be stable over time.
C) the VAR computation becomes complex as portfolio complexity increases.
Your answer: C was incorrect. The correct answer was A) market data necessary to compute VAR is often not available.
One of the strengths of the variance/covariance VAR is that the required market data is readily available in most cases.
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May I please have an explanation of why C is a weakness of the variance/covariance approach? Who cares why happens to portfolio complexity--the (very simple formula) is still just (Rp-z*stddev)Vp--why would it become more complex?作者: IAmNeil 时间: 2011-7-11 19:09
By complexity, they mean the increasing number of inputs into the model, not necessarily the complexity of the formulas etc.
And that's a meaningless question again. One of the advantages of traditional var/covar VaR is the readily availability of historical data, which does not mean that lack of historical data could not be a problem for a particular case.作者: bodhisattva 时间: 2011-7-11 19:09
instead of nitpicking Schweser questions, learn the pros and cons of the VAR methods. Way too much time wasting.
