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VaR Limits for Pension Funds: An Evaluation

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  • Berstein, Solange
  • Chumacero, Rómulo

Abstract

This paper evaluates the effects of imposing Value-at-Risk (VaR) limits and quantitative restrictions on portfolio choices in the context of a risk-based supervision framework for defined contribution pension funds. It shows the conditions under which VaR constraints are equivalent to constraints on volatility. The paper also presents some further considerations that regulators should take into account when adopting a risk-based supervision framework when contributions are mandatory and a significant part of the pension depends on the performance of past investments.

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File URL: http://mpra.ub.uni-muenchen.de/22574/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22574.

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Date of creation: 10 Apr 2010
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Handle: RePEc:pra:mprapa:22574

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Keywords: Portfolio Choice; VaR;

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References

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  1. Guidolin, Massimo & Timmermann, Allan, 2006. "Term structure of risk under alternative econometric specifications," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 285-308.
  2. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
  3. Basak, Suleyman & Shapiro, Alexander, 2001. "Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 371-405.
  4. Alexander, Gordon J. & Baptista, Alexandre M., 2002. "Economic implications of using a mean-VaR model for portfolio selection: A comparison with mean-variance analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1159-1193, July.
  5. LeRoy,Stephen F. & Werner,Jan, 2001. "Principles of Financial Economics," Cambridge Books, Cambridge University Press, number 9780521586054, Fall.
  6. Enrico De Giorgi, . "A Note on Portfolio Selection under Various Risk Measures," IEW - Working Papers 122, Institute for Empirical Research in Economics - University of Zurich.
  7. repec:fth:inseep:2000-05 is not listed on IDEAS
  8. Solange M. Berstein & Rómulo A. Chumacero, 2006. "Quantifying the costs of investment limits for Chilean pension funds," Fiscal Studies, Institute for Fiscal Studies, vol. 27(1), pages 99-123, March.
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Cited by:
  1. Solange Berstein & Olga Fuentes & Nicolás Torrealba, 2011. "La Importancia de la Opción por Omisión en los Sistemas de Pensiones de Cuentas Individuales," Working Papers 44, Superintendencia de Pensiones, revised Jan 2011.
  2. Solange Berstein, 2011. "Implementación de la Reforma Previsional en Chile," Working Papers 45, Superintendencia de Pensiones, revised Apr 2011.
  3. Solange Berstein & Olga Fuentes & Nicolás Torrealba, 2010. "Sistema de Pensiones de Capitalización Individual: ¿Cómo Mitigar Riesgos?," Working Papers 35, Superintendencia de Pensiones, revised Feb 2010.
  4. Solange Berstein & Olga Fuentes & Nicolás Torrealba, 2010. "In an Individually Funded Pension System: How Can Risks Be Mitigated?," Working Papers 36, Superintendencia de Pensiones, revised Feb 2010.

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