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Basic Question 2 of 6
Consider the following statements:
II. Monte Carlo simulation requires the specification of a probability distribution.
III. Monte Carlo simulation is very useful, but it is not adequate for the development of estimates of Value at Risk.
I. Monte Carlo analysis is helpful in the development of sensitivity analysis regarding the assumptions of a model.
II. Monte Carlo simulation requires the specification of a probability distribution.
III. Monte Carlo simulation is very useful, but it is not adequate for the development of estimates of Value at Risk.
Which of the above statements is correct?
User Contributed Comments 4
| User | Comment |
|---|---|
| danlan | II is required so we can use the proba to generate samples. |
| surob | how about I? Why is it correct answer? |
| bdaguy | This isn't addressed in the notes but is true as it relates to measuring the change in a specified output when altering given inputs. By observing the amount of change in the output, it helps determine the most critical (ie. most important) inputs. |
| Matt26 | Thanks bdaguy! |
You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu
Learning Outcome Statements
describe Monte Carlo simulation and explain how it can be used in investment applications
CFA® 2025 Level I Curriculum, Volume 1, Module 6.