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CFA Level I · CFA Level I Exam · Simulation of Financial Asset Prices and Returns

In a bootstrap procedure applied to a sample of 60 monthly returns, each resample is most likely constructed by:

Each bootstrap resample is built by drawing 60 returns from the original 60 with replacement. Replacement lets observations repeat, producing different resamples. Without replacement every resample would equal the original sample, and drawing from a fitted distribution would be parametric simulation instead.

  1. Adrawing 60 returns from the sample with replacementCorrect
  2. Bdrawing 60 returns from the sample without replacement
  3. Cdrawing 60 random values from a distribution fitted to the sample

Explanation

Bootstrap resamples are the same size as the original sample and are drawn with replacement, so some observations appear more than once and others not at all. Drawing without replacement would reproduce the original sample each time. Drawing from a fitted distribution is parametric Monte Carlo simulation.

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