Explain simple and complicated formula of value at risk

Question

Explain the difference between simple and complicated formula of value at risk.

Answer 1

The difference in between complicated and simple is essentially the difference among portfolios without derivatives and those with. If your portfolio only consists of linear instruments then computation involving normal distributions and standard deviations, all is done analytically. This is also the case when the time horizon is short therefore derivatives can be approximated through a position of delta in the underlying.