Time-inconsistency of VaR and time-consistent alternatives

Patrick Cheridito and Mitja Stadje ()

Finance Research Letters, 2009, vol. 6, issue 1, 40-46

Abstract: We show that VaR (Value-at-Risk) is not time-consistent and discuss examples where this can lead to dynamically inconsistent behavior. Then we propose two time-consistent alternatives to VaR. The first one is a composition of one-period VaR's. It is time-consistent but not coherent. The second one is a composition of average VaR's. It is a time-consistent coherent risk measure.

Keywords: Value-at-Risk; Time-consistency; Composed; Value-at-Risk; Composed; average; Value-at-Risk (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:6:y:2009:i:1:p:40-46

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