Portfolio Frontiers with Restrictions to Tracking Error Volatility and Value at Risk

Giulio Palomba () and Luca Riccetti

No 358, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: Asset managers are often given the task of restricting their activity by keeping both the value at risk (VaR) and the tracking error volatility (TEV) under control. However, these constraints can not always be simultaneously satisfied because the VaR is independent of the benchmark portfolio. The management of these restrictions is likely to affect portfolio performances and produces a wide variety of scenarios in the risk-return space. The aim of this paper is to analyse various interactions between portfolio frontiers when restrictions upon TEV and VaR are jointly imposed. Analytical solutions for the intersections are provided and short numerical methods are proposed when solutions are not available. Finally, a new portfolio frontier is introduced.

Keywords: asset allocation; portfolio frontiers; tracking error volatility; value at risk (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Pages: 34
Date: 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://docs.dises.univpm.it/web/quaderni/pdf/358.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Portfolio frontiers with restrictions to tracking error volatility and value at risk (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:358

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