Value at Risk on expected return
- By Andrea Idini
- In Finance Science
- With No Comments
- Tagged with definition portfolio
- On 10 May | '2015
Value at Risk on expected return is the lower bound for the loss in an investement respect to a probability.
Is a way to estimating losses probabilities in terms of value, instead of standard deviation. E.g. in the case of , means that the investor have a probability
of loosing
€ or more, investing
€ on the portfolio
.
Considering the system ergodic and thus all the variances of the titles summing up coherently to for a variance of the portfolio distributed within the normal distribution, this is simply calculated considering the quantile (the value of the distribution corresponding to a certain fraction of probability)
.
(!) The of a portfolio is not a weighted average of the
of its component, because
but is given by the covariance matrix
due to the correlation of assets
.