Mean-Variance Portfolio allocation with a Value at Risk Constraint
AbstractIn this paper, I first provide a unifying approach to Mean-Variance analysis and Value at Risk, which highlights both their similarities and differences. Then I use it to explain how fund managers can take investment decisions within the well-known Mean-Variance allocation framework that satisfy the VaR restrictions imposed by regulators. 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 Financial Markets Group in its series FMG Discussion Papers with number dp380.
Date of creation: May 2001
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Other versions of this item:
- Sentana, Enrique, 2001. "Mean Variance Portfolio Allocation with a Value at Risk Constraint," CEPR Discussion Papers 2997, C.E.P.R. Discussion Papers.
- 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.
- Sentana, E., 2001. "Mean-Variance Portfolio Allocation with a Value at Risk Constraint," Papers 0105, Centro de Estudios Monetarios Y Financieros-.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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- Grau-Carles, Pilar & Sainz, Jorge & Otamendi, Javier & Doncel, Luis Miguel, 2009. "Different risk-adjusted fund performance measures: a comparison," Economics Discussion Papers 2009-54, Kiel Institute for the World Economy.
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