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Here is one very simple approach. However the devil is in the details. Choose some benchmark tenors (market factors), e.g. 1Y, 2Y... 30Y swap rates. For each tenor, calculate the P&L if the interest rate at this tenor moves 1 basis point, ceteris paribus. This gives you the vector of sensitivities to market factors. Calculate the covariance matrix for ...


I glimpsed at the regulation: In Annex II, part 1, no 11 and 12, they define the return as log-returns, see screenshot: Hence, I'd argue that you should use your calculation 1.


In (value at) risk calculations, we are commonly interested in the risk of changes of the value of our portfolio that are induced by external factors, i.e. thru changes in market prices. To that end, we usually fix the invested asset universe and the market environment (e.g. rates / prices / vols) at the onset of our risk calculation and compute a base ...


It depends on how you're calculating VaR. If you're looking at your total portfolio's returns over recent history, then it's taking the portfolio at that time into account. If you're looking at the history of just the current positions, then that's only looking at the current positions. Other forward-looking methods like monte-carlo would just look at the ...

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