PORTFOLIO VALUE-AT-RISK

Abstract

In this paper the portfolio Value-at-Risk formulas are investigated using the portfolio assets weights. Considering draw-
backs of the classic approach, where Value-at-Risk is treated like the standard deviation of return, more sophisticated
formulas are derived. The Value-at-Risk back-testing of the Dow Jones index portfolio shows that the estimation error for
the derived formulas is lower than for the classic approach. Moreover, analysis of the results shows that in many cases this
error partially offsets the estimation error for the expected returns and their standard deviations through sample statistics.