Value at risk: Is a theoretically consistent axiomatic formulation possible?

Domingo Castelo Joaquin

The Quarterly Review of Economics and Finance, 2009, vol. 49, issue 2, pages 725-729

Abstract: This note identifies three properties of a risk measure, the acceptance of all of which implies the acceptance of the VaR risk measure; and the rejection of any one of which implies the rejection of the VaR risk measure. First, a risk measure should reflect weak aversion to losses. Second, only sufficiently likely threats matter. Finally, the risk measurement should be unaffected by how promising the upside may look like. These properties, by themselves, constitute a consistent set of axioms that are necessary and sufficient for the acceptance of the VaR risk measure on a given probability space. The axiomatization highlights a peculiar characteristic of VaR: it ignores the upside, while at the same time neglecting the worse of the downside.

Keywords: Value; at; risk; Coherent; risk; measures; Shackle; Downside; risk; Expected; shortfall (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6W5X ... 4eccfa83f554e0000ab5
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:quaeco:v:49:y:2009:i:2:p:725-729

Access Statistics for this article

The Quarterly Review of Economics and Finance is edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Series data maintained by Heidi Boesdal ().