Python for Finance - Second Edition

VaR based on sorted historical returns

We know that stock returns do not necessarily follow a normal distribution. An alternative is to use sorted returns to evaluate a VaR. This method is called VaR based on historical returns. Assume that we have a daily return vector called ret. We sort it from the smallest to the highest. Let's call the sorted return vector sorted_ret. For a given confidence level, the one-period VaR is given here:

Here, position is our wealth (value of our portfolio), confidence is the confidence level and n is the number of returns. The len() function shows the number of observations and the int() function takes the integer ...