20. Which of the following statements about VaR estimation methods is wrong?

A. he delta?normal VaR method is more reliable for portfolios that implement portfolio insurance through dynamic hedging than for portfolios that implement portfolio insurance through the purchase of put options.

B. The full valuation VaR method based on historical data is more reliable for large portfolios that contain significant option?like investments than the delta?normal VaR method.

C. The delta?normal VaR method can understate the true VaR for stock portfolios when the distribution of the return of the stocks has high kurtosis.

D. Full valuation VaR methods based on historical data take into account non?linear relationships between risk factors and security prices.

Correct answer is Afficeffice" />

This is wrong because the delta?normal VAR method is based on a first order or linear relationship, which cannot capture non?linear relationships of option?like positions.  All other statements about VAR estimation methods are correct.

Reference: Jorion, Chapter 9.

Type: Market Risk.