Advanced Search
MyIDEAS: Login

Use of value at risk by institutional investors

Contents:

Author Info

  • Katerina Simons
Registered author(s):

    Abstract

    In recent years, risk management has been of growing interest to institutional investors, including pension funds, insurance companies, endowments, and foundations, as well as the asset management firms that manage funds on their behalf. Traditionally, institutional investors, and particularly pension funds, have emphasized measuring and rewarding investment performance by their portfolio managers. In the past decade, however, many U.S. pension funds have significantly increased the complexity of their portfolios by broadening the menu of acceptable investments. At the same time, well-publicized losses among pension funds, hedge funds, and municipalities have underlined the importance of risk management and measuring performance on a risk-adjusted basis. ; One approach to risk management, known as Value at Risk (or VaR), has gained increasing acceptance in the last five years. VaR originated on derivatives trading desks and then spread to other trading operations. It is a measure of risk based on a probability of loss and a specific time horizon in which this loss can be expected to occur. VaR has become an accepted standard in the banking industry and it forms the basis of bank capital requirements for market risk. VaR adoption has been slower in the investment management industry, but as demand grows and consensus about the standards emerges, its use can be expected to accelerate. The author discusses the issues surrounding measures of risk adjusted performance, and she describes the major difficulties institutional investors may encounter when implementing VaR analysis. She concludes with a discussion of possible policy implications of widespread VaR adoption.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bostonfed.org/economic/neer/neer2000/neer600b.htm
    Download Restriction: no

    File URL: http://www.bostonfed.org/economic/neer/neer2000/neer600b.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

    Volume (Year): (2000)
    Issue (Month): Nov ()
    Pages: 21-30

    as in new window
    Handle: RePEc:fip:fedbne:y:2000:i:nov:p:21-30

    Contact details of provider:
    Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210
    Phone: 617-973-3397
    Fax: 617-973-4221
    Email:
    Web page: http://www.bos.frb.org/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: Risk management;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Katerina Simons, 1997. "Model error," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 17-28.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Broll, Udo & Wahl, Jack E., 2003. "Value at risk, bank equity and credit risk," Dresden Discussion Paper Series in Economics 04/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
    2. Broll, Udo & Wahl, Jack E., 2006. "Value at risk, Equity and Diversification," Dresden Discussion Paper Series in Economics 03/06, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
    3. Udo Broll & Anna Sobiech & Jack E. Wahl, 2012. "Banking Firm, Equity and Value at Risk," Contemporary Economics, University of Finance and Management in Warsaw, vol. 6(4), December.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:2000:i:nov:p:21-30. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.