AdjustedVarianceCovarianceVaR function

Cornish-Fisher adjusted variance-covariance VaR

Estimates the variance-covariance VaR of a multi-asset portfolio using the Cornish-Fisher adjustment for portfolio-return non-normality, for specified confidence level and holding period.

AdjustedVarianceCovarianceVaR(vc.matrix, mu, skew, kurtosis, positions, cl, hp)

Arguments

• vc.matrix: Assumed variance covariance matrix for returns
• mu: Vector of expected position returns
• skew: Portfolio return skewness
• kurtosis: Portfolio return kurtosis
• positions: Vector of positions
• cl: Confidence level and is scalar or vector
• hp: Holding period and is scalar or vector

Examples

# Variance-covariance for randomly generated portfolio
   vc.matrix <- matrix(rnorm(16),4,4)
   mu <- rnorm(4)
   skew <- .5
   kurtosis <- 1.2
   positions <- c(5,2,6,10)
   cl <- .95
   hp <- 280
   AdjustedVarianceCovarianceVaR(vc.matrix, mu, skew, kurtosis, positions, cl, hp)

Author(s)

Dinesh Acharya

References

Dowd, K. Measuring Market Risk, Wiley, 2007.