Parametric VaR

The Parametric VaR calculation assumes that the PnL returns are normally distributed and also independent from each other. Consequently, the calculated standard deviation is used to compute a standard normal Z-score to determine the VaR.

Example of parametric VaR calculation:

• Standard deviation of PnL over specified time period: 25,000
• Mean of PnL over specified time period: 50,000
• Z-score for 99% confidence level: 2.326

The Parametric VaR for the specified time period with a 99% confidence level is:

50,000 - 25,000 * 2.326 = -$8,150