 Analytical Portfolio Value-at-RiskMPRA Paper from University Library of Munich, Germany Abstract: The paper develops analytical tools used to calculate the VaR of a portfolio composed of generally distributed assets. Accordingly, the VaR of a portfolio is analytically constructed from the conditional returns of the individual assets. This analytical VaR can then be used to construct optimal portfolios of generally distributed assets for the case in which the target function and/or constraints are expressed in terms of VaR. The proposed method is applicable in a wide range of practical problems such as utility maximization under a VaR constraint. The article demonstrates this method by developing a minimal VaR rule that identifies the proportions that minimize the portfolio VaR. This rule is used to compare the minimal VaR portfolio with the minimal standard deviation portfolio in the case of the lognormal distribution. This example illustrates the importance of downside risk in optimal asset allocation even under modest deviations from the normal distribution such as in the case of the lognormal distribution. Keywords: Value-at-Risk; Risk measurement; Portfolio Optimization; Downsize Risk (search for similar items in EconPapers) Published in Journal of Risk 2.7(2005): pp. 33-54 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80216 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.