True or False ? The historical method is nonparametric and does not allow the user to make assumption about the probability distribution of returns.
TRUE, but it’s not about “allowing”, it just doesn’t required that assumption.
True?
Actual question is : Which one is appropriate statement A. The Monte Carlo simulation requires an assumption of normally distributed returns. B. The historical method is nonparametric and does not allow the user to make assumption about the probability distribution of returns. C. The historical method relies completely on events of past, and the probability distribution of the past may not hold in the future.
C
Answer is C
The correct answer is C. But I wonder why B can not be a correct answer.
AMC Wrote: ------------------------------------------------------- > The correct answer is C. But I wonder why B can > not be a correct answer. It’s all on the wording…I repeat the words " does not allow" make a big difference. So C is definitely more appropriate than B because the historical method DOES ALLOW the user to make assumptions but the assumptions are irrelevant.All that mater are the time series of returns. Tricky Tricky, I would choose this one but now the option C is on the table, the answer is much more clear.
Yes, care must be taken to this kind of tricky question on the exam !