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Optimal portfolio allocation under the probabilistic VaR constraint and incentives for financial innovation

Author

Listed:
  • Jón Daníelsson

    ()

  • Bjørn Jorgensen

    ()

  • Casper Vries

    ()

  • Xiaoguang Yang

    ()

Abstract

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Suggested Citation

  • Jón Daníelsson & Bjørn Jorgensen & Casper Vries & Xiaoguang Yang, 2008. "Optimal portfolio allocation under the probabilistic VaR constraint and incentives for financial innovation," Annals of Finance, Springer, vol. 4(3), pages 345-367, July.
  • Handle: RePEc:kap:annfin:v:4:y:2008:i:3:p:345-367
    DOI: 10.1007/s10436-007-0081-3
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    References listed on IDEAS

    as
    1. Rohit Rahi & José M. Marín, 1999. "Speculative securities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(3), pages 653-668.
    2. Leland, Hayne E, 1980. " Who Should Buy Portfolio Insurance?," Journal of Finance, American Finance Association, vol. 35(2), pages 581-594, May.
    3. Franklin Allen, Douglas Gale, 1988. "Optimal Security Design," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 229-263.
    4. Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(04), pages 459-471, December.
    5. Mark Grinblatt & Francis A. Longstaff, 2000. "Financial Innovation and the Role of Derivative Securities: An Empirical Analysis of the Treasury STRIPS Program," Journal of Finance, American Finance Association, vol. 55(3), pages 1415-1436, June.
    6. 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.
    7. Stephen A. Ross, 1976. "Options and Efficiency," The Quarterly Journal of Economics, Oxford University Press, vol. 90(1), pages 75-89.
    8. Arzac, Enrique R. & Bawa, Vijay S., 1977. "Portfolio choice and equilibrium in capital markets with safety-first investors," Journal of Financial Economics, Elsevier, vol. 4(3), pages 277-288, May.
    9. Grossman, Sanford J & Vila, Jean-Luc, 1989. "Portfolio Insurance in Complete Markets: A Note," The Journal of Business, University of Chicago Press, vol. 62(4), pages 473-476, October.
    10. Cornelius M. Schilbred, 1973. "The Market Price of Risk," Review of Economic Studies, Oxford University Press, vol. 40(2), pages 283-292.
    11. Green, Richard C. & Rydqvist, Kristian, 1999. "Ex-day behavior with dividend preference and limitations to short-term arbitrage: the case of Swedish lottery bonds," Journal of Financial Economics, Elsevier, vol. 53(2), pages 145-187, August.
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    Citations

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    Cited by:

    1. E. Birgin & L. Bueno & N. Krejić & J. Martínez, 2011. "Low order-value approach for solving VaR-constrained optimization problems," Journal of Global Optimization, Springer, vol. 51(4), pages 715-742, December.
    2. Frank Milne, 2008. "Credit Crises, Risk Management Systems and Liquidity Modelling," Working Papers 1, John Deutsch Institute for the Study of Economic Policy.
    3. Ba Chu, 2012. "Large deviations estimation of the windfall and shortfall probabilities for optimal diversified portfolios," Annals of Finance, Springer, vol. 8(1), pages 97-122, February.
    4. Hałaj, Grzegorz, 2013. "Optimal asset structure of a bank - bank reactions to stressful market conditions," Working Paper Series 1533, European Central Bank.
    5. Lwin, Khin T. & Qu, Rong & MacCarthy, Bart L., 2017. "Mean-VaR portfolio optimization: A nonparametric approach," European Journal of Operational Research, Elsevier, vol. 260(2), pages 751-766.
    6. Wu, Meng & Zhu, Stuart X. & Teunter, Ruud H., 2013. "The risk-averse newsvendor problem with random capacity," European Journal of Operational Research, Elsevier, vol. 231(2), pages 328-336.
    7. Daníelsson, Jón & Jorgensen, Bjørn N. & Samorodnitsky, Gennady & Sarma, Mandira & de Vries, Casper G., 2013. "Fat tails, VaR and subadditivity," Journal of Econometrics, Elsevier, vol. 172(2), pages 283-291.

    More about this item

    Keywords

    Portfolio optimization; Value-at-risk; Computational complexity; State–price density; G11;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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