Value-at-Risk Based Risk Management: Optimal Policies and Asset Prices
- Topics:
- Commercial Lending
- Tags:
- Asset,
- Social Science Electronic Publishing Inc.,
- Risk Manager,
- Risk Management,
- Operational Planning,
- Investment,
- Finance,
- Business Operations,
- Asset Price,
- Asset Management,
- ...
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Overview: This article analyzes optimal, dynamic portfolio and wealth/consumption policies of utility maximizing investors who must also manage market-risk exposure using Value-at-Risk (VaR). We find that VaR risk managers often optimally choose a larger exposure to risky assets than non risk managers, and consequently incur larger losses, when losses occur. We suggest an alternative risk-management model, based on the expectation of a loss, to remedy the shortcomings of VaR. A general-equilibrium analysis reveals that the presence of VaR risk managers amplifies the stock-market volatility at times of down markets and attenuates the volatility at times of up markets.
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Format: HTML | Date: Jan 2003 | Pages: 1
