VaR Risk Measures versus Traditional Risk Measures: an Analysis and Survey

Guy Kaplanski and Yoram Kroll

MPRA Paper from University Library of Munich, Germany

Abstract: The article presents an analysis and survey regarding the validity of VaR risk measures in comparison to traditional risk measures. Individuals are assumed to either maximize their expected utility or possess a lexicographic utility function. The analysis is carried out for generally distributed functions and for the normal and lognormal distributions. The main conclusion is that although VaR is an inadequate measure within the expected utility framework, it is at least as good as other traditional risk measures. Moreover, it can be improved by modified versions such as the Accumulated-VaR (Mean-Shortfall) Assuming a lexicographic expected utility strengthens the argument for using AVaR as a legitimate risk measure especially in the case of a regulated firm.

Keywords: Value-at-Risk; Risk management; Risk measures; Mean-Shortfall (search for similar items in EconPapers)
JEL-codes: C0 C02 C1 C65 C69 (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published in Journal of Risk 3.4(2002): pp. 1-27

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80070

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