Sentana, Enrique (2001) Mean-variance portfolio allocation with a value at risk constraint. Financial Markets Group Discussion Papers (380). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
In this paper, I first provide a unifying approach to Mean-Variance analysis and Value at Risk, which highlights both their similarities and differences. Then I use it to explain how fund managers can take investment decisions within the well-known Mean-Variance allocation framework that satisfy the VaR restrictions imposed by regulators. I do so by introducing a new type of line to the usual mean-standard deviation diagram, called IsoVaR, which represents all the portfolios that share the same VaR for a fixed probability level. Finally, I analyse the shadow cost of a VaR constraint.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2001 The Author |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions |
| Date Deposited: | 28 Aug 2009 13:47 |
| Last Modified: | 13 Sep 2024 19:45 |
| URI: | http://eprints.lse.ac.uk/id/eprint/25058 |
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