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Assume I have a series of future incomes in a single foreign currency.

How do I calculate the total VaR for this forex risk using the volatility method?

My first thought was that I could simply add up the VaR for each future income, i.e. for receiving $V_1, V_2, ..., V_n$ at times $T_1, T_2, ..., T_n$ the 95% VaR would be:

$$\operatorname{VaR}_{0.95} = -1.65\sum_i{\sigma V_i \sqrt{T_i}}$$

but is this correct?

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  • $\begingroup$ VaR is not an additive function of the assets or incomes. Especially since those incomes are not mutually independent. $\endgroup$ – Raskolnikov Nov 10 '17 at 20:09
  • $\begingroup$ It seems to me a step is missing: the future cash flows should be combined together in some sort of Present Value... $\endgroup$ – Alex C Nov 11 '17 at 16:16

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