[R-SIG-Finance] Framework for VAR allocation among traders

[Brian G. Peterson]

On Thursday 13 March 2008 22:32:59 adschai at optonline.net wrote:
> Hi,I'm looking for VAR allocation framework among traders. I saw some
> papers but none of which (at least that I saw) look practical. I am
> wondering if anyone can hint me some idea or some reference? The situation
> is if at the desk level you were given a certain amount of VAR limit, how
> should one allocate the number among traders? THank you.adschai

Calculate Component VaR.

The first definition (as far as I know) is in Garman in Risk Magazine.  The 
article may be found here:

Garman, Mark, "Taking VaR to Pieces (Component VaR)," RISK 10, 10, October 
1997.
http://www.fea.com/pdf/componentvar.pdf

He also has a longer working paper on the topic here:

http://www.gloriamundi.org/detailpopup.asp?ID=453055537

We implemented Component VaR for assets with non-normal distribution in our 
recent paper here:

Boudt, Kris, Peterson, Brian G. and Croux, Christophe, "Estimation and 
Decomposition of Downside Risk for Portfolios With Non-Normal Returns" 
(October 31, 2007).
http://ssrn.com/abstract=1024151

All code for our paper was implemented in R, and is available.  We will also 
be cleaning up and documenting the functions in the next version of 
PerformanceAnalytics.

Regards,
  
    - Brian