VaR and Portfolio Rebalancing
The following was implemented in Maple by Marcus Davidsson (2010) davidsson_marcus@hotmail.com
We start by noting that the fifth percentile represent the threshold that makes sure that 5% of the return distribution lies below such a threshold with 95% confidence.
If we take the integral from -infinity to such a threshold we get 0.05.
Such a threshold can be seen below:
Now the VaR is a function of two components
i) the portfolio mean ii) the portfolio variance
For the portfolio variance.
