As I am not very experienced in financial econometrics I need help in writing R code for MC simulation for VaR estimation. Namely, reading some books and reference manuals for R packages, I ended up with the following code:
-constructing hypothetical portfolio consisting of x1 and x2
p<-matrix(c(rnorm(1000,50,4),rnorm(1000,5,0.5)),ncol=2);
colnames(p)<-c("x1","x2")
-x1 and x2 weights
weights<-c(100,100)
-calculated means and covariance matrix
mu<-apply(p,2,mean);
sigma<-cov(p)
-generate 10000 scenarios for x1 and x2 with given covariance matrix sigma
library(MASS);
MC<-mvrnorm(10000,mu,sigma)
-calculate portfolio value for simulated x1 and x2
MCportfolio<-MC%*%t(weights)
-find VaR for 95%
quantile(MCportfolio,p=0.05)
Could someone tell me if this is the right way or not to perform MC simulation for VaR?
Thanks in advance for any help or guidelines.
Best Answer
I don't know much about VaR, but your line
should probably be
because