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Compare paramatric, historical, and monte carlo simulation methods in identifying VaR (value at risk) 2. What are the pros and cons of those? 3. Identify some weights on historical losses that you think should make more sense in current trading war environment. 1.Historical Simulation collects data allows to obtain a distribution (array) of results for any statistical problem with numerous inputs sampled over and over again. The first simulation trial assumes that the percentage changes in all risk factors are as on the first day. The second simulation trial assumes that the percentage changes in all risk factors are as on the second day Parametric Simulation looks at the price movements of investments over a look-back period and uses probability theory to compute a portfolio's maximum loss. The value at risk calculates the standard deviation of price movements of an investment or security. Assuming stock price returns and volatility follow a normal distribution, the maximum loss within the specified confidence level is calculated.
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