Historical simulation (finance)

Historical simulation is a method used in finance to assess the value-at-risk (VaR) and to analyze other risk metrics by using historical market data. This technique helps financial institutions and investors understand the potential losses or gains that could occur over a certain period based on actual historical price movements of assets. Here’s a breakdown of how historical simulation works: 1. **Historical Data Collection**: Historical price data for the assets or portfolios being analyzed are collected.