Mean Variance Portfolio Allocation with a Value at Risk Constraint

Enrique Sentana

No 2997, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper, I first provide a simple unifying approach to static Mean-Variance analysis and Value at Risk, which highlights their similarities and differences. Then I use it to explain how fund managers can take investment decisions that satisfy the VaR restrictions imposed on them by regulators, within the well-known Mean-Variance allocation framework. I do so by introducing a new type of line to the usual mean-standard deviation diagram, called IsoVaR,which represents all the portfolios that share the same VaR for a fixed probability level. Finally, I analyse the 'shadow cost' of a VaR constraint.

Keywords: Risk management; Portfolio frontier; Market risk capital (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2001-10
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Mean-Variance Portfolio Allocation with a Value at Risk Constraint (2001)
Working Paper: Mean-variance portfolio allocation with a value at risk constraint (2001)
Working Paper: Mean-Variance Portfolio allocation with a Value at Risk Constraint (2001)
Working Paper: Mean-Variance Portfolio Allocation with a Value at Risk Constraint (2001)
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