# Risk Management Quiz

Match the following three scenarios with the correct VAR method to be used. Scenario 1: Portfolio’s with simple, linear characteristics, particularly those with a limited budget for computing resources and analytical personnel Scenario 2: More complex portfolios containing options and time-sensitive bonds Scenario 3: Portfolio with complex derivatives Method 1: Monte Carlo Method 2: Analytical VAR Method 3: Historical VAR A) Method 1, Method 3, Method 2 B) Method 2, Method 1, Method 3 C) Method 2, Method 3, Method 1 D) Method 1, Method 2, Method 3

C

knock off A and D in a heartbeat… out of the other 2, yeah I’ll cosign on C, sure.

I am going to go with B " time-sensitive " appears to imply path dependency. Might be over analyzing the words though

C

options and derivs are not normally distributed so 1= method 2 more complex- sounds harder than regular complex and i think historical is used when valuing the hardest of the hard . so i will go with more complex= historical,equalling 231 c

Yeah … C. With some exposure to fixed income, the possibilities are limited (Tails are less fat), thus historical data would have a decent representation of the distribution. A portfolio of just complex derivatives could be all over the place. Flimsy logic? You betcha. Thanks for the q though!

C

C

C for sure.

C Hope everyone gets this, these are easy points (if questions of this difficulty come up on the exam)

B - Bonds have interest rate dependancy which I think would be better modelled with M-C

I would go with B too.

the answer is C: i agree with bannisja in knocking off A and D immediately - * Monte Carlo, although expensive and resource intensive, is better at managing the risk of complex derivatives in a portfolio. * Applying Historical VAR for a portfolio with complex derivatives is plain silly and will get you fired, thus, answer B is clearly wrong.

You leave me with no other option but C. C is the only option with Monte Carlo for portfolios with more complex derivatives.

B