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Sensitivity of portfolio VaR and CVaR to portfolio return characteristics

Authors :
Stoyan V. Stoyanov
Head of Research, EDHEC Risk InstituteAsia

Svetlozar T. Rachev
Professor of Quantitative Finance,
Stony Brook University

Frank J. Fabozzi
Professor of Finance, EDHEC Business School
Member of EDHEC-Risk Institute

Risk management through marginal rebalancing is important for institutional investors due to the size of their portfolios.

EDHEC Working Paper

EDHEC Working Paper

We consider the problem of marginally improving portfolio VaR and CVaR through a marginal change in the portfolio return characteristics. We study the relative significance of standard deviation, mean, tail thickness, and skewness in a parametric setting assuming a Student's t or a stable distribution for portfolio returns. We also carry out an empirical study with the constituents of DAX30, CAC40, and SMI. Our analysis leads to practical implications for institutional investors and regulators.
Type :
Working Paper
Dates :
Created on January 13, 2012
Further information :
For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ]

The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.

Finance

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