What's new

YouTube T1-6 What is bootstrap historical simulation?


New Member
I didn't understand where those Sim forward returns come from. For index 1,2,3,4,18,19,20,21, we can look back and find them in historical window by using the VLOOKUP, but how to generate forward returns for other random values, I am still confused about it.

David Harper CFA FRM

David Harper CFA FRM
Staff member
Hi @Lenka2019 In this bootstrap HS, we have a historical window of indexed returns, see below; e.g., the day 3 returns were actually AAPL = -1.2%, AMAT = -1.4%, HPQ = -0.6%. So we have an indexed, actual returns; day 20 was AAPL = 0.5%, AMAT = 2.9%, HPQ = -0.1%. Then the simulation simply needs a random number going forward, 1:n where n = the number of actual indexed days, so we are randomly selecting a day in the past window. My excel uses =INT(RAND()*21)+1 to retrieve a random integer from 1 to 21 because i only have 21 days in the actual history. My first random number was 3, so i retrieve those returns (red arrow) and apply the returns to the current portfolio.

In GARP's VRM Chapter 2, they illustrate only a historical simulation (as opposed to this bootstrap HS). The difference is that their (simple) HS does not retrieve a random(ly indexed) day; rather, their first day would apply the returns from the first day, second day would apply returns to the second day, etc ... I hope that's helpful!