Bootstrap
InvestingDefinition
Statistical resampling technique for simulating future scenarios using HISTORICAL returns rather than parametric assumptions. Pulls random returns (with replacement) from the historical sample to construct possible paths.
Avoids the "normal distribution" assumption of standard Monte Carlo. Captures fat tails and serial correlation that actually show up in historical data. Used heavily in academic financial planning research.
Avoids the "normal distribution" assumption of standard Monte Carlo. Captures fat tails and serial correlation that actually show up in historical data. Used heavily in academic financial planning research.