A New Perspective on Daily Value at Risk Estimates

  •  Arthur L. Dryver    
  •  Sarayut Nathaphan    


Daily value at risk (VaR) estimates are sometimes calculated as if the institution is only concerned about short-term performance or risk position. In reality though, a risk manager may not consider changing the investment allocation in the foreseeable future, and with a highly-leveraged position daily VaR could be very misleading in terms of true risk to the financial institution. This paper recommends looking at VaR, taking the possibility that a financial institution will use the same assest allocation over a longer period of time while borrowing at over night rates. Finally, the paper introduces a more conservative estimate than the traditional VaR estimates.

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