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

Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices 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. Oxford University Press « Previous | Next Article » Table of Contents This Article Rev. Financ. Stud. (2001) 14 (2): 371-405. doi: 10.1093/rfs/14.2.371 » Abstract Free Full Text (HTML) Free Full Text (PDF) Free Classifications Article Services Article metrics Alert me when cited Alert me if corrected Find similar articles Similar articles in Web of Science Add to my archive Download citation Request Permissions Citing Articles Load citing article information Citing articles via CrossRef Citing articles via Scopus Citing articles via Web of Science Citing articles via Google Scholar Google Scholar Articles by Basak, S. Articles by Shapiro, A. Search for related content Related Content G11 - Portfolio Choice; Investment Decisions G13 - Contingent Pricing; Futures Pricing Load related web page information Share Email this article CiteULike Delicious Facebook Google+ Mendeley Twitter What's this? Search this journal: Advanced » Current Issue December 2015 28 (12) Alert me to new issues The Journal About this journal Publishers' Books for Review Rights & Permissions Dispatch date of the next issue We are mobile – find out more Journals Career Network Published on behalf of The Society for Financial Studies The Review of Financial Studies Impact factor: 3.174 5-Yr impact factor: 6.192 Executive Editor Andrew Karolyi View full editorial board For Authors Instructions to authors Self-archiving policy Editors’ Joint Policy Statement Regarding “Coercive Citations” Alerting Services Email table of contents Email Advance Access CiteTrack XML RSS feed Corporate Services Advertising sales Reprints Supplements var taxonomies = ("SOC01040"); Most Most Read Digesting Anomalies: An Investment Approach The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes Shareholder Voting and Corporate Governance Around the World » View all Most Read articles Most Cited Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors A Theory of Intraday Patterns: Volume and Price Variability A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options Market Liquidity and Funding Liquidity » View all Most Cited articles Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department. Online ISSN 1465-7368 - Print ISSN 0893-9454 Copyright © 2015 Society for Financial Studies Oxford Journals Oxford University Press Site Map Privacy Policy Cookie Policy Legal Notices Frequently Asked Questions Other Oxford University Press sites: Oxford University Press Oxford Journals China Oxford Journals Japan Academic & Professional books Children's & Schools Books Dictionaries & Reference Dictionary of National Biography Digital Reference English Language Teaching Higher Education Textbooks International Education Unit Law Medicine Music Online Products & Publishing Oxford Bibliographies Online Oxford Dictionaries Online Oxford English Dictionary Oxford Language Dictionaries Online Oxford Scholarship Online Reference Rights and Permissions Resources for Retailers & Wholesalers Resources for the Healthcare Industry Very Short Introductions World's Classics function fnc_onDomLoaded() { var query_context = getQueryContext(); PF_initOIUnderbar(query_context,":QS:default","","JRN"); PF_insertOIUnderbar(0); }; if (window.addEventListener) { window.addEventListener('load', fnc_onDomLoaded, false); } else if (window.attachEvent) { window.attachEvent('onload', fnc_onDomLoaded); } var gaJsHost = (("https:" == document.location.protocol) ? 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Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices

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Publisher
Oxford University Press
Copyright
Copyright © 2015 Society for Financial Studies
ISSN
0893-9454
eISSN
1465-7368
D.O.I.
10.1093/rfs/14.2.371
Publisher site
See Article on Publisher Site

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. Oxford University Press « Previous | Next Article » Table of Contents This Article Rev. Financ. Stud. (2001) 14 (2): 371-405. doi: 10.1093/rfs/14.2.371 » Abstract Free Full Text (HTML) Free Full Text (PDF) Free Classifications Article Services Article metrics Alert me when cited Alert me if corrected Find similar articles Similar articles in Web of Science Add to my archive Download citation Request Permissions Citing Articles Load citing article information Citing articles via CrossRef Citing articles via Scopus Citing articles via Web of Science Citing articles via Google Scholar Google Scholar Articles by Basak, S. Articles by Shapiro, A. Search for related content Related Content G11 - Portfolio Choice; Investment Decisions G13 - Contingent Pricing; Futures Pricing Load related web page information Share Email this article CiteULike Delicious Facebook Google+ Mendeley Twitter What's this? Search this journal: Advanced » Current Issue December 2015 28 (12) Alert me to new issues The Journal About this journal Publishers' Books for Review Rights & Permissions Dispatch date of the next issue We are mobile – find out more Journals Career Network Published on behalf of The Society for Financial Studies The Review of Financial Studies Impact factor: 3.174 5-Yr impact factor: 6.192 Executive Editor Andrew Karolyi View full editorial board For Authors Instructions to authors Self-archiving policy Editors’ Joint Policy Statement Regarding “Coercive Citations” Alerting Services Email table of contents Email Advance Access CiteTrack XML RSS feed Corporate Services Advertising sales Reprints Supplements var taxonomies = ("SOC01040"); Most Most Read Digesting Anomalies: An Investment Approach The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes Shareholder Voting and Corporate Governance Around the World » View all Most Read articles Most Cited Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors A Theory of Intraday Patterns: Volume and Price Variability A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options Market Liquidity and Funding Liquidity » View all Most Cited articles Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department. Online ISSN 1465-7368 - Print ISSN 0893-9454 Copyright © 2015 Society for Financial Studies Oxford Journals Oxford University Press Site Map Privacy Policy Cookie Policy Legal Notices Frequently Asked Questions Other Oxford University Press sites: Oxford University Press Oxford Journals China Oxford Journals Japan Academic & Professional books Children's & Schools Books Dictionaries & Reference Dictionary of National Biography Digital Reference English Language Teaching Higher Education Textbooks International Education Unit Law Medicine Music Online Products & Publishing Oxford Bibliographies Online Oxford Dictionaries Online Oxford English Dictionary Oxford Language Dictionaries Online Oxford Scholarship Online Reference Rights and Permissions Resources for Retailers & Wholesalers Resources for the Healthcare Industry Very Short Introductions World's Classics function fnc_onDomLoaded() { var query_context = getQueryContext(); PF_initOIUnderbar(query_context,":QS:default","","JRN"); PF_insertOIUnderbar(0); }; if (window.addEventListener) { window.addEventListener('load', fnc_onDomLoaded, false); } else if (window.attachEvent) { window.attachEvent('onload', fnc_onDomLoaded); } var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www."); document.write(unescape("%3Cscript src='" + gaJsHost + "google-analytics.com/ga.js' type='text/javascript'%3E%3C/script%3E")); try { var pageTracker = _gat._getTracker("UA-189672-16"); pageTracker._setDomainName(".oxfordjournals.org"); pageTracker._trackPageview(); } catch(err) {}

Journal

The Review of Financial StudiesOxford University Press

Published: Apr 1, 2001

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