Alternative Investments Q89
- Option : C
- Explanation : Most alternative investments tend to be leptokurtic and negatively skewed i.e. with fat tails due to positive average returns and long-tails downside due to potential extreme losses. Since their distribution is not close to normal distribution but is negatively skewed, standard deviation is not an appropriate measure for volatility and hence leads to an understated VaR figure. Moreover, since alternative investments are generally illiquid, the use of estimated rather than actual transaction prices result in smoothed out or overstated returns and understated volatility/standard deviation.
