Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices

Clicks: 3
ID: 301868
2001
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Abstract
This article analyzes optimal, dynamic portfolio and wealth/consumption policies of utility maximizing investors who must also manage market-risk exposure using Value-at-Risk (VaR). We find that VaR risk managers often optimally choose a larger exposure to risky assets than non-risk managers and consequently incur larger losses when losses occur. We suggest an alternative risk-management model, based on the expectation of a loss, to remedy the shortcomings of VaR. A general-equilibrium analysis reveals that the presence of VaR risk managers amplifies the stock-market volatility at times of down markets and attenuates the volatility at times of up markets.
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openalex_W3123552065 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Suleyman Basak, Alexander Shapiro
Journal review of financial studies
Year 2001
DOI
10.1093/rfs/14.2.371
URL
https://doi.org/10.1093/rfs/14.2.371
Keywords Keywords not found

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