Which lags or percentiles should be run in a batch when calculating Value-at-Risk?

Question

Are there any "standard" VaR calculations run in a batch?

For example, testing a VaR calculation with a lag of 1,2, 5 or 10 days over 2 years?

Same question for the percentile, 1%, 2.5%, 5% etc.

Answer 1

Standard (read: regulators will accept it) could be a one day, 99% VaR calculated with two years of historical data. A minimum of one year of history is needed although this is not the norm. Typically the one-day VaR is transformed into a 10-day VaR by scaling the calculation by sqrt(10). However, the new market risk rule governs that one justify their use of the square-root factor leaving the alternative of an actual 10-day VaR calculation (a lag of 10 days as you suggest).

Answer 2

Usually when it is for (market) risk management purposes it is quite standard to have 1 day horizon with (allegedly ;-) ) 99% confidence level.

As far as I know when it is for regulatory or economic capital requirement and/or Asset Liability Management then horizons might be much longer up to one year and confidence levels are usually 99% and 95%.

Regards

Answer 3

I think time length should very dependent on the holding period you are looking at.(This is at least how we handle) For example, if you turn your book every ten minutes, a 6 month time frame could be sufficient. If your holding periods are on a monthly basis, you will need much longer holding periods