# [R-SIG-Finance] [R-sig-finance] VaR again

megh megh700004 at yahoo.com
Wed Apr 29 11:32:30 CEST 2009

```Hi all Gurus, I have a problem to quantify the riskiness of a typical
position wherein this position is in some foreign country. Let me be more
specific on my problem.

Say I am a British investor and taken a position in NYSE, say in ATT (AT&T).
Therefore apart from the risk due to fluctuation in stock quote of that, I
am exposed of additional risk due to fluctuation in USD/GBP exchange rate. I
intend to calculate the VaR of this position in GBP. Here I used monte carlo
simulation approach to find that, which is as follows, please see the R code
:

# calculation of risk on an unit position
att <- 25.67
# last traded price of AT&T in USD
usdgbp <- 0.68366
# last quote for USDGBP
vcv <- matrix(c(5.33727E-05, 2.56709E-05, 2.56709E-05,0.000176556), 2)

# VCV matrix for AT&T and USDGBP

# We simulate 1-day ahead stock price and ex. rate assumig a Bi-variate
normal dist. with above VCV structure
library(mnormt)
simu <- exp(rmnorm(10000, c(log(25.67),log(0.68366)), vcv))
simu.pos.val <- apply(simu, 1, function(X) X[1]*X[2])                 #
Simulated value of my position in USD
abs(quantile(simu.pos.val, 0.05) - att*usdgbp)               # VaR (in GBP)
in terms of Maximum possible loss

Upto this point I am OK. However next thing automatically comes is that what
is contribution of Stock and Ex. rate in total risk, i.e. Dissecting the
risk. Can anyone please guide me how to do this for n-asset portfolio (of
this kind) under MCS framework?

Thanks
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