# Value-at-Risk and dividend payments

How should dividends be considered when computing Value-at-Risk for a stock portfolio using Historic data.
To simplify let's consider a very simple portfolio of one long position on a stock. My VaR model setups is also very simple:

• I have returns for the stock for the past 500 days
• I then take the empircal distribution and call my 99% VaR as the 5th "worst" scenario

But how should I include the dividend payments for the stock? This question can be boiled down to: How should I take dividend payments into account and construct a new return series for the stock?

I have been considering to override the return at dividend payment days the following way:

$$\hat{r}_t=\frac{P_t+DVD-P_{t-1}}{P_{t-1}}$$ $\hat{r}_t$ is the new return. Are there any valid arguments that is is not a good way to tackle the problem mentioned above?

• This is correct but the adjustment should be made on $t=$ ex dividend date rather than on he payment date. – Antoine Conze May 4 '18 at 9:04

You are right, one should consider returns that are adjusted for dividends payments (if you go for arithmetic returns, then it's your $\hat{r}_t$).