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Subadditivity Re–Examined: the Case for Value-at-Risk

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Author Info
Casper G. de Vries
Gennady Samorodnitsky
Bjørn N. Jorgensen
Sarma Mandira
Jon Danielsson ()

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Abstract

This paper explores the potential for violations of VaR subadditivity both theoretically and by simulations, and finds that for most practical applications VaR is subadditive. Hence, there is no reason to choose a more complicated risk measure than VaR, solely for reasons of coherence.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp549.

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Date of creation: Nov 2005
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Handle: RePEc:fmg:fmgdps:dp549

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  1. Gaglianone, Wagner Piazza & Linton, Oliver & Lima, Luiz Renato Regis de Oliveira, 2008. "Evaluating Value-at-Risk models via Quantile regressions," Economics Working Papers (Ensaios Economicos da EPGE) 679, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
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  2. Jeremy Berkowitz & Peter Christoffersen & Denis Pelletier, 2005. "Evaluating Value-at-Risk models with desk-level data," Working Paper Series 010, North Carolina State University, Department of Economics, revised Dec 2006. [Downloadable!]
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