The historical method uses actual returns for the position in question. An advantage of the historical method is not having to assume any particular distribution. A disadvantage is that it assumes past performance is representative of what can occur in the future, which may not be the case. The Monte Carlo simulation method for calculating VAR usually involves generating random numbers with a computer. The generated numbers represent possible returns of the asset or portfolio. An advantage is that Monte Carlo simulation does not require the normality assumption and can accommodate the required assumptions for complex relationships.  A disadvantage is the requirement for many managerial assumptions and a great deal of computer time and calculations. The historical method and Monte Carlo Simulation both suffer from modeling risk.