n NISM Certifications
XXI NISM Series XXI-A
Medium

Which of the following is a limitation of the historical simulation method while developing a model to measure investment risks?

Practice question from NISM XXI A for PMS - Mock Test 2 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. I only

    Correct answer

  2. B

    I and II only

  3. C

    I and III only

  4. D

    I, II, and III

Why this is the answer

The main limitation is that "the past may not repeat itself." The method assumes that future returns will follow patterns similar to past returns, but this is not guaranteed, especially in volatile or changing markets.

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