Executing Variance/Covariance Approach 

  1. Choose Financial accounting ® Treasury ® Market risk ® Information system ® Value at risk ® Variance/Covariance.

    2. The selection screen for report RFTVVAR3 appears.

  2. Enter the selection criteria for the financial transactions. You can use the single transaction level.
  3. Enter the selection criteria for the financial transactions in the data group Cash Management.
  4. Enter the Value from date in the data group Value at risk calculation.
  5. Choose a Display currency.
  6. Choose an Evaluation type.
  7. Enter the Historical period or the Beginning of history.
  8. Choose a Holding period.
  9. Choose a Confidence level. This confidence level expresses (within the probability distribution of the VaR) what level of risk you are prepared to take.
  10. Choose a Risk hierarchy.

To display risk in the framework of Value at Risk evaluations, it is important that the risk hierarchy and the evaluation type match. The evaluation type determines the yield curve types which are used to value financial instruments. The risk hierarchy determines for which yield curve types historical time sequences are formed. A risk can therefore only be output if the yield curve type of the evaluation type is the same as the yield curve type of the risk hierarchy.
  1. Choose an Volatility type.
  2. Choose an Correlation type.
  3. Choose the Sorting order and the Summarization level in the data group Output control.
  4. Choose execute.

Result

You will get the VaR of the selected transactions based on the variance/covariance approach.