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Subadditivity re–examined: the case for value-at-risk

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  • Danielsson, Jon
  • Jorgensen, Bjørn N.
  • Mandira, Sarma
  • Samorodnitsky, Gennady
  • Vries, C. G. de

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.

Suggested Citation

  • Danielsson, Jon & Jorgensen, Bjørn N. & Mandira, Sarma & Samorodnitsky, Gennady & Vries, C. G. de, 2005. "Subadditivity re–examined: the case for value-at-risk," LSE Research Online Documents on Economics 24668, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24668
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    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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