How has VaR changed over time?

By Felix Salmon
August 6, 2009

Whenever I write about banks’ rising Value-at-Risk, a bunch of commenters tells me that duh of course VaR is rising, because VaR is a function of volatility, and volatility has gone up. So here’s my question: can someone come up with a baseline VaR chart, for a hypothetical bank which had, say, a fixed $1 million investment in the S&P 500. What would its quarterly Value-at-Risk have looked like over the past couple of years?

Would the decrease in volatility this year have shown up as decreased VaR in say the second quarter? Or do the volatility calculations go back so far that only now are we losing the Great Moderation datapoints and using volatility numbers only from the era of increased volatility?

Armed with that kind of baseline chart, we’ll be able to tell much more easily, for any given bank, whether it’s actually increasing the size of its bets, or whether increased VaR is simply a statistical necessity given the recent history of volatility. Does such a chart exist?

Update: Phorgy comes through. All banks calculate VaR differently, but this is a really useful resource. Basically Var increased enormously in 2008, and after that slowed down sharply in 2009, possibly even dropping significantly. Which means, I think, that any significant increases in VaR in 2009 can’t be blamed on increased volatility.

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