Can someone please explain to me how most banks calculate their stress VaR. is there a regulatory-defined time series, such as the 2008 to 2009 period, to apply to the current position? My understanding of the VAR calculation is a rolling window of 251 days. So, how would some credit spreads/ratings in 2008 affect the current VaR number for a credit bond portfolio?
Yes, my bank uses a stressed VaR period where the daily changes remain static to reflect that chosen period.
The regular VaR uses a rolling window.
The problem, and I think this is a general misapplication is that the "stressed period" is never recognised. I have known institutions whose regular VaR is higher than their stressed VaR yet there is no consideration that they are operating within a stressed period, even though it is evident that they are in one.