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VaR and Sub-additivity Explained by efecote is a document available to read on EtoBox.

What is VaR and Sub-additivity Explained about?

VaR is not necessarily sub-additive. The document uses an example of three zero-coupon bonds, A, B, and C, each with three possible future price outcomes. It calculates the VaR of the individual bonds and their portfolio to show that the portfolio VaR can exceed the sum of the individual VaRs, violating the sub-additive property. Specifically, the 99% VaR of each bond is 0, so their sum is also 0. However, when considering all outcomes of the combined portfolio, the probability of losses exceeds 0.9607, mea

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efecote

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