medium · FRM Part 1

One significant criticism of the Historical Simulation approach is its 'discrete' reaction to new data. This refers to the fact that:

1. The model can only handle discrete assets like stocks and bonds, not continuous derivatives.
2. The VaR values are always integers and never include decimals.
3. The VaR estimate only changes when an observation exactly at the percentile rank is replaced.
4. It requires the use of discrete probability mass functions instead of densities.

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