medium · FRM Part 1 Valuation and Risk Models

Comparing the computational requirements of VaR methods, which statement is most accurate regarding Historical Simulation (HS) vs. Parametric VaR?

1. Parametric VaR is slower because it always requires estimating and inverting a full covariance matrix across every risk factor.
2. HS is generally regarded as being faster because it never actually requires sorting the simulated P&L outcomes.
3. HS can be computationally intensive because it requires 'full revaluation' of the portfolio for every historical scenario.
4. Both methods require essentially the same computational time since each one relies fundamentally on a Monte Carlo simulation engine.

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