Hi, I got some problem to drop a mail while using Nabble account, therefore
sending it again there. My query is following :
Hi all,
My question is not directly R related but rather a finance related question.
Therefore I was wondering wheher I find a reliable answer here.
Here I wanted to calculate VaR for basis (spot-future). There could be two
approaches : 1: Assuming basis as a portfolio of two assets and then
calculate the risk of the spread, 2 : Create a historical price series of
basis then calculate VaR like single asset portfolio.
Which one would be correct approach? In my opinion 1st is correct because,
as basis can get any value like +ve & -ve, cashflow is not well defined in
the sense that, if I sell basis (as an asset) and that time basis is
negative, then I actually paying money for selling my asset !!! and secondly
I cannot calculate percentage/logarithmic return for basis as basis can take
zero-value as well.
Can anyone validate that? What is the standard approach for calculating risk
of a spread series? Should not we consider the fundamental risk factors
(like in basis-case they are spot & future)?
Best
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