<s>
Historical	B-Algorithm
simulation	I-Algorithm
in	O
finance	O
's	O
value	O
at	O
risk	O
(	O
VaR	O
)	O
analysis	O
is	O
a	O
procedure	O
for	O
predicting	O
the	O
value	O
at	O
risk	O
by	O
'	O
simulating	O
 '	O
or	O
constructing	O
the	O
cumulative	O
distribution	O
function	O
(	O
CDF	O
)	O
of	O
assets	O
returns	O
over	O
time	O
.	O
</s>
<s>
Unlike	O
parametric	B-General_Concept
VaR	O
models	O
,	O
historical	B-Algorithm
simulation	I-Algorithm
does	O
not	O
assume	O
a	O
particular	O
distribution	O
of	O
the	O
asset	O
returns	O
.	O
</s>
<s>
However	O
,	O
there	O
are	O
a	O
couple	O
of	O
shortcomings	O
of	O
historical	B-Algorithm
simulation	I-Algorithm
.	O
</s>
<s>
Historical	B-Algorithm
simulation	I-Algorithm
applies	O
equal	O
weight	O
to	O
all	O
returns	O
of	O
the	O
whole	O
period	O
;	O
this	O
is	O
inconsistent	O
with	O
the	O
diminishing	O
predictability	O
of	O
data	O
that	O
are	O
further	O
away	O
from	O
the	O
present	O
.	O
</s>
<s>
Weighted	O
historical	B-Algorithm
simulation	I-Algorithm
applies	O
decreasing	O
weights	O
to	O
returns	O
that	O
are	O
further	O
away	O
from	O
the	O
present	O
,	O
which	O
overcomes	O
the	O
inconsistency	O
of	O
historical	B-Algorithm
simulation	I-Algorithm
with	O
diminishing	O
predictability	O
of	O
data	O
that	O
are	O
further	O
away	O
from	O
the	O
present	O
.	O
</s>
<s>
However	O
,	O
weighted	O
historical	B-Algorithm
simulation	I-Algorithm
still	O
assumes	O
independent	O
and	O
identically	O
distributed	O
random	O
variables	O
(	O
IID	O
)	O
asset	O
returns	O
.	O
</s>
<s>
Filtered	O
historical	B-Algorithm
simulation	I-Algorithm
tries	O
to	O
capture	O
volatility	O
which	O
is	O
one	O
of	O
the	O
causes	O
for	O
violation	O
of	O
IID	O
.	O
</s>
