Exercise

# Historical Simulation

**Historical simulation** of VaR assumes that the distribution of historical losses is the *same* as the distribution of future losses. We'll test if this is true for our investment bank portfolio by comparing the 95% VaR from 2005 - 2006 to the 95% VaR from 2007 - 2009.

The list `asset_returns`

has been created for you, which contains asset returns for each of the two periods. You'll use this list to create `portfolio_returns`

with the available `weights`

, and use this to derive portfolio `losses`

.

Then you'll use the `np.quantile()`

function to find the 95% VaR for each period. If the loss distributions are the same, then the 95% VaR estimate should be about the same for both periods. Otherwise the distribution might have changed as the global financial crisis took hold.

Instructions

**100 XP**

- Create a Numpy array of
`portfolio_returns`

for the two periods, from the list of`asset_returns`

and portfolio`weights`

. - Generate the array of
`losses`

from`portfolio_returns`

. - Compute the historical simulation of the 95% VaR for both periods using
`np.quantile()`

. - Display the list of 95% VaR estimates.