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What is Limitations of Historical Simulation VaR about?

The document discusses limitations of historical simulation, a common method used to calculate Value-at-Risk (VaR). There are two main limitations: 1) it does not account for asymmetric changes in risk, where volatility increases more during losses than gains, and 2) it assumes returns are independent when volatility actually changes over time. The BRW method is an improvement but still does not detect increases in VaR for portfolios that experience large profits. In simulations, true VaR changes more frequ

Author

Krishan Parwani

Language

EN