The VaR may be determined using variance/covariance models, historical simulations and Monte-Carlo simulations. When selecting the model, the investment strategy is to be taken into account.
The VaR must be calculated daily on the basis of the previous day’s positions using the following parameters:
a 99th percentile, one-tailed confidence interval;
a holding period of 20 trading days;
an effective historical observation period of at least one year (250 bank working days).
The VaR factors in interest rate risk, currency risk, share price risk and commodity risks. The following must also be taken into account:
gamma and vega risks in the case of option positions;
specific risks in the form of residual risks;
event, default and liquidity risks as part of stress tests.
The calculations must be clearly documented.
Variance from the confidence interval, the holding period or the observation period is possible owing to exceptional market circumstances, and must have the prior approval of FINMA.