Mean Variance Portfolio Allocation with a Value at Risk Constraint
AbstractIn 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.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2997.
Date of creation: Oct 2001
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Other versions of this item:
- Sentana, E., 2001. "Mean-Variance Portfolio Allocation with a Value at Risk Constraint," Papers 0105, Centro de Estudios Monetarios Y Financieros-.
- Enrique Sentana, 2001. "Mean-variance portfolio allocation with a value at risk constraint," LSE Research Online Documents on Economics 25058, London School of Economics and Political Science, LSE Library.
- Enrique Sentana & Enrique Sentana, 2001. "Mean-Variance Portfolio allocation with a Value at Risk Constraint," FMG Discussion Papers dp380, Financial Markets Group.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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