The Var At Risk
I show that the structure of the firm is not neutral with respect to regulatory capital budgeted under rules which are based on the Value-at-Risk. Indeed, when a holding company has the liberty to divide its risk into as many subsidiaries as needed, and when the subsidiaries are subject to capital requirements according to the Value-at-Risk budgeting rule, then there is an optimal way to divide risk which is such that the total amount of capital to be budgeted by the shareholder is zero. This result may lead to regulatory arbitrage by some firms.
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Volume (Year): 13 (2010)
Issue (Month): 04 ()
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- Burgert, Christian & Ruschendorf, Ludger, 2006. "Consistent risk measures for portfolio vectors," Insurance: Mathematics and Economics, Elsevier, vol. 38(2), pages 289-297, April.
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- Christian Gourieroux & Wei Liu, 2006. "Efficient Portfolio Analysis Using Distortion Risk Measures," Working Papers 2006-17, Centre de Recherche en Economie et Statistique.
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