Risk budgeting and Value-at-Risk

Keith Pilbeam and Rehan Noronha

International Journal of Monetary Economics and Finance, 2008, vol. 1, issue 2, 149-161

Abstract: Value-at-Risk (VaR) is a popular risk-metric for reporting financial exposure, for evaluating fund/manager performance and for regulatory disclosures. Yet, VaR is not a coherent risk measure because it is not sub-additive. This paper applies the methodology of risk budgeting to determine if VaR qualifies as a coherent risk measure. We show that the tools of risk budgeting allow VaR to be treated as a coherent risk measure, even though it does not restore sub-additivity. The main finding is that the additional analysis provided by risk budgeting means that VaR is a useful tool even if it is not sub-additive.

Keywords: value-at-risk; VaR; risk budgeting; risk management; risk attribution; risk decomposition; risk measures. (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=19219 (text/html)
Access to full text is restricted to subscribers.

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: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:1:y:2008:i:2:p:149-161

Access Statistics for this article

More articles in International Journal of Monetary Economics and Finance from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().