Non parametric

Is it advantage or disadvantage for Historical VAR? I think it is advantage as far as exam conerned…

Advantage …

Advantage Dont need to assume normality of returns

I believe it’s an advantage for Historical VAR as well, because it does not assume normal distribution like analytical VAR does. However, can someone explain why historical VAR is considered nonparametric since one does take for example 95% of the top returns as its confidence interval?

Adv CFA land.

foxiegroup Wrote: ------------------------------------------------------- > Adv > > CFA land. i still cant believe that i got this one wrong. I knew that major disadvantage is that it takes historical data so any future projects will be unreliable, but the wording of the answe was just sooo offf, and the one that said that it is disadvantage was rational and i would agree with it. stupid. It is not enough to know what it is, you also need to know what CFAI think it is

Disadvantage: Based on historical value, underlying economics may have changed, VAR may not be relialbe anymore.

NonParametric is advantage

^it is. Because you don’t need to make assumptions.

nonparametric involves minimal probability-distribution aasumptions, so its an advantage csk to make you feel better, I got it wrong too :slight_smile:

no-one answered my question yet? Why is it non-parametric if we are constructing a 95% confidence interval? I do understand that analytical VAR uses st. dev. and assumes normal distribution but this confidence interval on the historical VAR seems parametric to me.

that is why i cant wait to go for MBA, so if BS like that comes up i can argue with proff