ACI Dealing Certificate (#146)

Which one of the following statements regarding the variance-covariance method for calculating value-at-risk is true?

The volatilities of the underlying assets are normally distributed and the prices remain constant.
The risk factors are normally distributed and volatilities of risk factors and correlations between risk factors are constant.
The prices of underlying assets are normally distributed, the volatilities of risk factors follow a GARCH process and correlations between risk factors are constant.
The returns of underlying assets are normally distributed and volatilities of risk factors and correlations between risk factors are constant.