What is the most accurate VaR method?
Accuracy is in the eye of the beholder. A general answer to this question is not possible, because it will depend on the nature of the portfolio and the data used in the estimation of VaR. Several studies comparing methodologies were conducted a few years back, typically with linear portfolios, either equities or fx. These tended to show that the variance-covariance approach was better when short histories of market prices were used, because Monte Carlo and Historical Simulation would under estimate the 99th percentile. With longer histories MC and HC were equal to or better than VCV. But I don’t recommend you generalizing from these studies, because of their limited scope. Because of this, it is very important to have an estimate of precision for every VaR estimate (A confidence interval).
