Mathematical Finance Seminar

March 29, 2000 5:30 PM to 7:00 PM

A new approach for computing portfolio VAR for asset managers

Jayanthi Sankaran, Quantitative Risk Advisors Inc.

In this paper, we present a new approach to computing portfolio VAR. Our method is an extension to the Portfolio Aggregation Methodology used by asset managers and independent risk oversight units. An appropriate set of factors is chosen so as to make the VAR calculations to be consistent with Performance Attribution. The advantage of our method lies in adopting a VAR approach consistent with returns based style and selection. Also, there is reduced data requirement in terms of elimination of complex covariance matrices.