A New Perspective on Daily Value at Risk Estimates

Arthur L. Dryver, Sarayut Nathaphan

Abstract


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.


Full Text: PDF DOI: 10.5539/ijef.v4n4p114

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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