CFA Level I · CFA Level I Exam · Simulation of Financial Asset Prices and Returns
Compared with Monte Carlo simulation based on a parametric distribution, bootstrap resampling is best described as:
Bootstrap resampling is best described as drawing observations with replacement from the observed data set. It uses the empirical distribution rather than an assumed parametric form, which is the key difference from standard Monte Carlo simulation using a specified distribution.
- Adrawing observations with replacement from the observed dataCorrect
- Bdrawing observations without replacement from a fitted normal distribution
- Cgenerating random numbers from a distribution with analytically known moments
Explanation
Bootstrap resampling draws repeatedly from the observed sample with replacement, so no distribution needs to be assumed. The other options describe parametric simulation, or a procedure that is not bootstrapping.
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