VARIANCE – COVARIANCE (DELTA NORMAL) APPROACH OF VAR MODELS:AN EXAMPLE FROMBOMBAY STOCK EXCHANGE

Numerous investors are inclined to understand, the quantum of wealth or capital they can lose in a
specific time period, which could be one day or 5 days or 10 days.In this research paper, out of
numerous approaches, variance – covariance approach of VaR is discussed.This method helps in
prediction of maximum loss that can occur for a specific time period and given probability. Here in
order to calculate VaR, portfolios are created, which is followed by identification of returns
distribution. Finally VaR of portfolios is calculated. Daily loss is calculated using data for the
period of 01stJanuary 2018 to 31st December 2018as historical data consisting of 246 days.
Companies were selected from Bombay Stock Exchange (BSE). VaR has been computed for both
95% and 99% confidence intervals for holding period of 1 day and 10 days.