I'm trying to calculate var for a portfolio of fixed income securities. I initially want to just calculate undiversified VaR for each instrument. I'm doing the following for each instrument

  1. Take historical daily log returns on YTM for coupon bond for say 2 years
  2. calculate mean and stdev as usual
  3. calculate VaR (change in yield) as -2.326*stdev(ln returns of YTM) + mean(ln returns of YTM)
  4. this as I understand is the 99% percentile of log returns of YTM which i then multiply with latest YTM to get actual change in yield
  5. Use duration formula i.e Change in price = Price * -Mod Duration * latest YTM * VaR (change in Yield)

Can someone please help me understand if this is incorrect? I know there are lot of issues with using YTM and not a cash flow mapping and also not even bootstrapping but is the general principal correct?


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