Which of the following is NOT a required step in determining VAR for a fixed-income portfolio?
A. Determine the changes in the values of the market factors.
B. Decompose and map the portfolio.
C. Regress the portfolio value changes against those of an identical hypothetical portfolio to determine the appropriate market factors.
D. Compute the mean and standard deviation of the changes in the portfolio value.
Answer:C
Regression analysis against a hypothetical but identical portfolio is not used in the process of choosing appropriate market factors.