VaR calculations are becoming increasing important for all the investors, bankers, and regulators. There are several ways to calculate VaR; the historical method, the Variance – Covariance Method, and Monte Carlo method. In this analysis, we will use the returns of stocks from Dow Jones Industrial Average for the last 40 years in order to make a comparison between different VaR calculation methods. We will try to determine how that observation time, normality of the data, time frame, and variation of the data influence different ways of calculating VaR.
Implementation of Historical Methods
Historical simulation is one of the popular methods used in ...