VaR Type Risk Combination

Combining VaR type risks can be done fairly easily by summing all VaR type risks occurring in the same time period assuming that the different VaR type risks are not correlated. For example, if an earthquake caused a fire, and then the fire destroyed a supplier s manufacturing facility, we consider this risk is from earthquake and not from the fire. In other words, we categorize VaR type risks by their fundamental sources. 

Since Ry ia 5,) represents the maximum loss at confidence level a, the aforementioned summation represents the worst case scenario, when all the VaR type risk events happen to the supplier S.  

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