Interview Question: Risky Values

Sample Question #19 (finance)

What does VaR (value at risk) measure? What are some of the assumptions behind the VaR concept? Given two portfolios A and B, does the following relationship hold: VaR(A+B) = VaR(A) + VaR(B)? Why or why not (i.e., prove your previous answer)?

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One Response to Interview Question: Risky Values

  1. Anil Kumar says:

    no this relationship does not hold. We need to know correlation factor.The correct relationship will beVaR(A+B)=SQRT( VaR(A)^2+VaR(B)^2-2*rho*VaR(A)*VaR(B))

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