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VaR and Portfolio Rebalancing

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VaR and Portfolio Rebalancing




The following was implemented in Maple by Marcus Davidsson (2010)

davidsson_marcus@hotmail.com

 

 

 

 

 

We start by noting that the fifth percentile represent the threshold that
makes sure that 5% of the return distribution lies below such a threshold
with 95% confidence.

 

If we take the integral from -infinity to such a threshold we get 0.05.

Such a threshold can be seen below:

 

 

 

 

 

 

 

Now the VaR is a function of two components

 

i) the portfolio mean

ii) the portfolio variance

 

 


For the portfolio variance.