Our starting point is to calculate Daily (1-day) VaR.
It is possible to convert VaR from one time-basis to another, e.g. daily to weekly.
The conversion formula is VaR (X%) for k Days = VaR (X%) Daily * √k
| Period | Days (k) | Square root |
|---|---|---|
| Daily | 1 | 1 |
| Week | 5 | 2.3607 |
| Month | 20 | 4.47213 |
| Year | 250 | 15.91139 |
Therefore:
§ Weekly VaR = VARDaily * √5
§ Monthly VaR = VARDaily * √20
§ Yearly VaR = VARDaily * √250
Example
If the Daily VaR for a particular asset A is 0.68%:
§ Weekly VaR = 0.68 x √ 5 = 1.605
§ Monthly VaR = x √ 20 = 3.041
§ Annual VaR = x √ 250 = 10.819