Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices
Review of Financial Studies
2001
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.
- DOI
- 10.1093/rfs/14.2.371
- Volume
- 14 (2)
- Pages
- 371-405
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref