Value at Risk Bounds for Portfolios of Non-Normal Returns
U. of Turin Statistics and Mathematics Working Paper
22 Pages Posted: 23 Jun 2001
Date Written: April 1, 2001
This paper studies Value at Risk (VaR) bounds for sums of stochastically dependent random variables, i.e. portfolios of correlated financial assets. The bounds hold under no restrictions on the dependence or on the marginal distributions of returns. An improvement of the bounds is given for positive (quadrant) dependent rvs. Both sets of bounds are computed for portfolios of 6 international indices. Backtesting confirms the usefulness of the approach, even with respect to other shortcuts, such as the normality assumption. For small portfolios, bounds are not over conservative.
Keywords: Value at Risk, Non-normal returns
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By Dirk Tasche