Monte Carlo - Historical Data required?

Discussion in 'P1.T1. Foundations of Risk (20%)' started by Cipher2014, May 15, 2012.

  1. Cipher2014

    Cipher2014 New Member

    Hi David,

    I remember in one of your videos you mentioned that there are 3 approaches to VaR

    Historical - historical data
    Monte Carlo - future data
    Parametric - no data

    My question is: for MC, the first step is to generate price paths using GBM. For that, while e is randomized, don't we need historical data to come up with the mean(drift) and variance(shock)?

    Could you kindly clarify?


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