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Extreme Events – Specimen Question A.3.1

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(a)    Explain the advantages and disadvantages of attempting to back-fill data for Index C for the first seven periods from data applicable to either Index A or Index B when creating a model that jointly describes the behaviour of all three indices.

 

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(b)   If you had to select between either Index A or Index B to backfill data for Index C as per (a), which would you use? Why?

 

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(c)    What are the advantages and disadvantages of using a linear combination of Index A and Index B to backfill data for Index C, rather than using an either/or approach as per (b)?

 

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