Value at Risk for Portfolio of Futures

External question — Quantitative Finance Stack Exchange Author: Koba Original post: https://quant.stackexchange.com/questions/77086 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I'm working in a very small commodity trading company. They are not used to excel at all, so i built their trading sheet to follow open positions & past positions. Now they asked me to calculate the VaR of the total portfolio. I have never done that, so I read a lot of ressources on the internet, especially topics on here, but none of them really explain on how to do it precisely. I'm calculating historical VaR The portfolio is made of futures & options They dont roll the futures. They keep the positions for a relatively short time (2-3 weeks) We have deposited 20k$ at the bank So I tried doing it: I choose the number of windows (1 year) so 250 cases I collected historical return of futures on t-1 I applied that return on t-1 to today futures position and record dollar P&L This is my first question. What does it mean to today's futures position ? I saw someone on youtube multiply it by the value of my portfolio (20k$) ? I repeat but change t-1 to t-2 and so on until I have 250 cases I then choose my significance level (5%) I rank those 250 P&L and get 5%th lowest percentile (top 5% most negative P&L) But the result is only for one futures position, how do i add different VaR to have the total VaR of the porfolio ? Because i have futures & options, and I don't know how to calculate the weight of each positions. Some people say to use the initial margin that i keep at the broker, but i wanted to be sure. Thank you in advance for your help

External answer — Quantitative Finance Stack Exchange Author: SuavestArt Original post: https://quant.stackexchange.com/a/77101 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Futures and options are financial derivatives, and one key feature is their inherent leverage, which means you don't need to have the full cash equivalent to finance the market risk they represent. You'll need to know the contract size of each instrument so as to get their notional value. In the context of historical VaR calculations, estimating correlations is not a concern. You can calculate VaR for each position by using the time series of returns and the notional value of each position. Then, add up these results to determine the portfolio VaR in dollar value. As mentioned earlier, expressing VaR in percentage terms doesn't provide meaningful insights for a portfolio of derivatives.

Value at Risk for Portfolio of Futures

Value at Risk for Portfolio of Futures

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