CFA Level I · CFA Level I Exam · Simulation of Financial Asset Prices and Returns
Compared with parametric Monte Carlo simulation, a key advantage of bootstrap resampling is that it most likely:
The key advantage is that bootstrap resampling needs no assumption about the underlying return distribution because it draws directly from observed data. Its results are still approximate and limited to values seen in the sample, so it cannot produce outcomes outside the observed range.
- Arequires no assumption about the return distributionCorrect
- Bproduces results that are exact rather than approximate
- Ccan generate outcomes outside the range of observed data
Explanation
Bootstrap uses the empirical data, so no distribution must be specified. Its results remain approximations that depend on the sample. It can only reproduce observed values, so it cannot generate outcomes beyond the observed range.
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