Question
Why are asset prices commonly modeled as lognormal rather than normal?
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Answer
Lognormal prices stay positive, consistent with limited liability.
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Question
If you want the sampling distribution of a Sharpe ratio without assuming returns are normal, which method fits best?
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Answer
Bootstrap resampling.
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Question
Why can Monte Carlo simulation model hypothetical future scenarios more easily than bootstrap?
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Answer
It draws from a specified model, not just past observations.
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Question
How does Monte Carlo simulation differ from bootstrap resampling in its data source?
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Answer
Monte Carlo draws from a theoretical distribution; bootstrap draws historical data.
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