Living on the edge: how risky is it to operate at the limit of the tolerated risk?

José Rodríguez-Mancilla ()

Annals of Operations Research, 2010, vol. 177, issue 1, 45 pages

Abstract: This paper studies some of the implicit risks associated with strategies followed by a risk averse investor who maximizes the expected value of his final wealth, subject to a risk tolerance constraint characterized in terms of a convex risk measure such as Conditional Value-at-Risk. Embedded probability measures are uncovered using duality theory; these are used to assess the probability of surpassing a standard Value-at-Risk threshold. Using one of these embedded probabilities, a closed-form measure of the financial cost of hedging the loss exposure associated to the optimal strategies is derived and shown to be, under certain assumptions, a coherent measure of risk. Copyright Springer Science+Business Media, LLC 2010

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s10479-009-0604-6 (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:spr:annopr:v:177:y:2010:i:1:p:21-45:10.1007/s10479-009-0604-6

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-009-0604-6

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().