Analytical VaR for international portfolios with common jumps

International portfolios which are composed of domestic assets and foreign assets are popular investment tools for financial institutions in highly integrated global financial markets. However, the focus of past studies had been on either domestic assets or foreign assets, but not both in the same context. They paid no attention to the studies of controlling the market risk of the international portfolios in the risk management literature. In contrast to the existing literature in portfolios, this paper considers not only domestic assets but also foreign assets, and provides an analytical value‐at‐risk (VaR) with common jump risk and exchange rate risk to manage market risk of international portfolios with exchange rate risk and common jumps over the subprime mortgage crisis. In general, the analytical solution can be used to accurately calculate VaRs by the backtesting criterion in terms of in‐sample and out‐of‐sample fitting for an international portfolio with common jumps.