What about 30-day 99% VaR...

From: Andreas Steiner
Affiliation:
Address: performanceanalysis@andreassteiner.net
Date: 09 Nov 2006
Time: 08:37:38

Comments

Glyn, First of all, thank you very much for this most interesting blog. I would like to mention another group of naive VaR users whose expectations are even more problematic than bank regulators: European Mutual Fund regulators. Funds using derivatives extensively for investment purposes (versus "hedging" purposes, whatever this means...) are classified as so-called "sophisticated" products. The UCITS III Product Directive requires such funds to calculate VaR on a daily basis, that is 30-day 99% VaR... VaR is seen by many people in mutual fund circles as a tool to "measure leverage". More specificially, leverage is believed to be controlled by the requirement that the 30-day 99% VaR of the fund with derivatives may not be higher than 200% of a 30-day 99% VaR of a so-called "reference portfolio" (basically a portfolio excluding derivatives). I'm looking forward to the "sophisticated" discussions of forthcoming accidents with "sophisticated" mutual funds... I would be very much interested in hearing some opinions of "VaR practitioners" coming from the classical banking/trading book-context on what is going on with mutual fund regulations in Europe.

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