VAR - Equity Futures

[gver]

Hi, I am trying to compute VAR for equity futures using HS .. could you suggest me how to go ahead with that .. should i use S*exp(r-q)t or simply generate a historical price series by roll over adjustment of generic contract and get VAR from its return dist .. also if latter case is preferred then which roll-over adjustment method wld b useful .. (any paper/good reference would be very useful) ..

 

[Yike Lu]

Not sure why you are doing this -- VaR is a risk management tool to be used on the PnL of a trading strategy. It is not an academic exercise. If you just want to get an X percentile, then yes, you piece together the price series, for which there's pretty much only one method -- you add back the spread between the months on roll over.

 

[koupparis]

For VaR, most places I know go with a theoretical price, so you don't have to worry about piecing together price series.

 

[gver]

My client has a portfolio (all sort of derivatives) for which he wants to get a VAR figure .. we are approaching it by segregating them on their type .. for swaptions for instance we had a pricer which took a daily change since 2005 for forward swap rate, OIS curve and vol . and using this we created a price series for each swaption ..

however, for futures, I am still not clear which way would be better .. also as u said that if we stitch them using spread the resultant new curve is a lot different than the original one .. which hampers the daily return calculation .. as far as i can remember BBG gives u a couple of ways for this roll over adjustment .. difference(the one u suggested), ratio , average etc .. i found the avg one better suited since it takes a proportion of both active and 2nd generic contact and the shape is pretty much undistorted from the original ..

and comments on this . also would be useful if u can refer me any research paper ..