Next: Model 3
Up: Discussion and Results
Previous: Model 1
Rectangular simulation is the simplest of the models employing
a covariance matrix at the basis of the VaR forecast and
completely satisfies the BIS framework.
The individual
analysis of each series and series pair for the determination of
the covariance matrix is the most important element distinguishing
this and other models from historical simulation (model 1).
This model (like historical simulation) makes no attempt to capture
the dynamics of the financial markets - particularly with regard
to the observed autocorrelation of volatility.