Portfolio Selection Based on Modified CoVaR in Gaussian Framework

Piotr Jaworski () and Anna Zalewska
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Piotr Jaworski: Institute of Mathematics, University of Warsaw, 02-097 Warszawa, Poland
Anna Zalewska: Faculty of Mathematics and Information Science, Warsaw University of Technology, 00-662 Warszawa, Poland

Mathematics, 2024, vol. 12, issue 23, 1-23

Abstract: We study a Mean-Risk model, where risk is measured by a Modified CoVaR (Conditional Value at Risk): CoVaR α , β ≤ ( X | Y ) = V a R β ( X | Y + V a R α ( Y ) ≤ 0 ) . We prove that in a Gaussian setting, for a sufficiently small β , such a model has a solution. There exists a portfolio that fulfills the given constraints and for which the risk is minimal. This is shown in relation to the mean–standard deviation portfolio, and numerical examples are provided.

Keywords: conditional value at risk (CoVaR); portfolio selection; mean-risk models; Gaussian copula (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
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