Can anyone help me on this questions?

[cqbzxk]

Hi guys, I wanna ask a simple question regarding VaR.

I remembered that Var(N days)=Var(1 day)*sqrt(N days) right?

and the following is two types of VaR, my question is which one fit above equation?
Relative VaR = Portfolio value * (volatility * normal deviate)
Absolute VaR= Portfolio value * (-E(R) + volatility * normal deviate)
My understanding is that relative VaR can be fitted as Var = Var * sqrt
but Abs VaR can not, am I right?

thanks.

 

[ShaktiRathore]

Hi there,
yes absolute VaR cannot be fitted as Var = Var * sqrt .
relative VaR (1day)= Portfolio value * (volatility * normal deviate) where volatility is one day volatility of portfolio. so to calculate T day volatility have scale volatility by sqrt of T and get it as sqrt(T)*one day volatility and T period VaR =Portfolio value * (T period volatility * normal deviate)=Portfolio value * (sqrt(T)*one day volatility* normal deviate)
1 day Absolute VaR= Portfolio value * (-E(R) in annual terms/(250 days) + 1 day volatility * normal deviate)
T period Absolute VaR= Portfolio value * (-E(R) in annual terms(T days)/250 + T period volatility * normal deviate)
T period Absolute VaR= Portfolio value * (-E(R)*T days/250 + sqrt(T)*one day volatility * normal deviate) where VaR cannot be scaled to sqrt of T as is possible in the case of relative Var.

thanks

 

[cqbzxk]

thanks ! this make it clear~