Historical Simulation, Value-at-Risk, and expected shortfall - Weighted Historical Simulation
3 important questions on Historical Simulation, Value-at-Risk, and expected shortfall - Weighted Historical Simulation
Again what are the drawbacks of HS approach
If m is to small you don't have enough observations in the left tails, if its to large than the VaR is not responsive enough.
Solution for the drawbacks can be WHS. Why
Gives more weights to the first and less to the past returns
What does WHS better than HS
Respond quickly to large losses, but it does not respond to large gains, and choosing m is less relevant since the last weights are very small.
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