For ease, consider the case of a bond portfolio (relates to point 3 from Ken), apart from the rebalancing & maturity of individual bonds, we may have bonds getting called (30 day notification period) or convertibles converted (a different risk profile). Hence bottom up aggregation is a viable measure in such portfolios.Couldn't we combine the portfolio first to get the distribution of portfolio log returns and then calculate the portfolio VaR from there? This way we won't have to deal with the correlation matrix?
Regards,
Joel