Sensitivity of portfolio VaR and CVaR to portfolio return characteristics
Risk management through marginal rebalancing is important for institutional investors due to the size of their portfolios.
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 SchoolMember of EDHEC-Risk Institute
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.
Sensitivity of portfolio VaR and CVaR to portfolio return characteristics...
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