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| Author: | Basak, S. Shapiro, A. |
| Title: | Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices |
| Journal: | Review of Financial Studies
2001 : SUMMER, VOL. 14:2, p. 371-406 |
| Index terms: | RISK MANAGEMENT RISK VALUE-AT-RISK OPTIMIZATION PRICES |
| Language: | eng |
| Abstract: | 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). The authors 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. The authors 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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