CORRECT TEXT

CORRECT TEXT

A Monte Carlo simulation based VaR can be effectively used in which of the following cases:
A . When returns data cannot be analytically modeled
B . When returns are discontinuous or display large jumps
C . Where analytical methods are too complex to effectively use
D . All of the above

View Answer

Answer: D

Explanation:

Monte Carlo simulations can be effectively used in all cases where an analytical estimate of the VaR cannot be made for any reason – which may include complexity of portfolios, discontinuities or non-linearity in returns or just the plain unavailability of closed form analytical models. Therefore Choice ‘d’ is the correct answer.