Hi,
Could someone please explain the answers to these 3 questions in the second book af GARP official material (Quantitative Analysis)?
6. You simulate the price path of stock HHF using a geometric Brownian motion model with the fiollowing parameters:
Where is this explained in the Quantitative Analysis book? In which reading?
7. Which of the following statements about Monte Carlo simulation is incorrect?
10. Based on 21 daily returns of an asset, a risk manager estimates the standard deviation of the asset's daily return to be 2%. Assuming that returns are normally distributed and that there are 260 trading days in a year, what is the appropriate chi-square test statistic if the risk manager wants to test the null hypotesis that the true annual volatility is 25% at a 5% significance level?
I do not understand why in the answers they say that: volatility = sqrt(260)*2%
Where does this come from?
Could someone please explain the answers to these 3 questions in the second book af GARP official material (Quantitative Analysis)?
6. You simulate the price path of stock HHF using a geometric Brownian motion model with the fiollowing parameters:
- Drift = 0
- Volatility = 0.2
- Time step = 0.01
Where is this explained in the Quantitative Analysis book? In which reading?
7. Which of the following statements about Monte Carlo simulation is incorrect?
- Monte Carlo simulations can handle time-varying volatility.
- Monte Carlo methods can be used to estimate VaR, but cannot be used to price options
- For estimating VaR, Monte Carlo methods generally require more computing power than histroical simulations
10. Based on 21 daily returns of an asset, a risk manager estimates the standard deviation of the asset's daily return to be 2%. Assuming that returns are normally distributed and that there are 260 trading days in a year, what is the appropriate chi-square test statistic if the risk manager wants to test the null hypotesis that the true annual volatility is 25% at a 5% significance level?
I do not understand why in the answers they say that: volatility = sqrt(260)*2%
Where does this come from?