VAR- LookBack Period

CFA Level II Portfolio Management
#1

Hi there,

can you tell me what is the lookback period and why its so important to VAR?

I do not understand how the choice of the lookback period can affect the result of var

#2

Statistics change over time.

#3

@s2000magician I am not sure to have understood the use of the lookback period

#4

Look back period is also known as WindowSize or Sample Window.

For example, for APPLE you want to calculate 1day 95%tl Parametric VAR. You can select past 1 year trade data or 6 months trade data. 1 yr/ 6 mnths is your lookback period and volatility in case 1 and case 2 will be different so the Parametric VAR

#5

lookback period is one of the disadvantages of VAR. As student 1 could be looking at relative performance of a security of last 1 yr. another student 2 could be looking at relative performance of a security of last 3 month. Student 1 might observe price appreciation.student 2 might observe price going sideways. Therfore, difference in time would effect VAR in a similr fashion