[R-SIG-Finance] Incremental and Component VaR

[Joe W. Byers]

Brian,

After reading your documented links.  The two source your are using 
confuse the definitions of IVAR and Marginal VAR as describe in the risk 
metrics documents.  IVAR in your first source is the riskmetrics 
definition. Marginal VAR in the second (sungard) is IVAR in the 
riskmetrics definitions and IVAR in this source in Marginal VAR in the 
riskmetrics definition.

This means you are not calculating the IVAR correctly.

Confusing isn't.

Joe


Brian G. Peterson wrote:
> I have previously posted several functions for analysis of the higher 
> moments of a returns distribution here:
> 
> http://braverock.com/brian/R/extra_moments.R
> 
> including a function to calculate modified Cornish-Fisher VaR.
> 
> I've intermittently tried to implement Incremental (or Component) VaR.
> 
> I could really use some help debugging this function.  In Incremental VaR, 
> the Incremental VaR of each component of the portfolio should all add up 
> to the total VaR of the portfolio.  Several papers suggest that this 
> should work with either traditional (RiskMetrics) VaR or with modified 
> Cornish-Fisher VaR.
> 
> Unfortunately, I can't get it to work with either VaR calculation, so I 
> must have an error in my logic somewhere.
> 
> Help would be greatly appreciated in fixing this function.  My 
> IncrementalVaR function begins on line 610 of the referenced 
> extra_moments.R file
> 
> Thanks in advance for any assistance.
> 
> Regards,
> 
>   - Brian
> 
> 
> Ref:
> 
> Incremental and Component VaR is described many places in the literature, 
> including:
> Beyond the VaR Horizon, Gaussel, et. al.
> http://www.mathfin.com/nicolas/Q37.pdf
> 
> Incremental, Marginal, and Component VaR, 2004, Denton and Jayaraman
> http://www.sungard.com/products_and_services/energy/variantsofvar1.pdf
> 
> extra_moments.R
> http://braverock.com/brian/R/extra_moments.R
>