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The Var at Risk

Author

Listed:
  • Alfred Galichon

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

I show that the structure of the firm is not neutral with respect to regulatory capitalbudgeted under rules which are based on the Value-at-Risk. Indeed, when a holdingcompany has the liberty to divide its risk into as many subsidiaries as needed, andwhen the subsidiaries are subject to capital requirements according to the Value-at-Riskbudgeting rule, then there is an optimal way to divide risk which is such that the totalamount of capital to be budgeted by the shareholder is zero. This result may lead toregulatory arbitrage by some firms.

Suggested Citation

  • Alfred Galichon, 2010. "The Var at Risk," Post-Print hal-03588292, HAL.
    • Handle: RePEc:hal:journl:hal-03588292
    DOI: 10.1142/S0219024910005875
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    Cited by:

    1. Arthur Charpentier, 2018. "An introduction to multivariate and dynamic risk measures," Working Papers hal-01831481, HAL.
    2. Valeria Bignozzi & Matteo Burzoni & Cosimo Munari, 2020. "Risk Measures Based on Benchmark Loss Distributions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(2), pages 437-475, June.

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