Assuming a Constant Elasticity of Variance (CEV) model for the asset price, that is a defaultable asset showing the so called leverage effect (high volatility when the asset price is low), a VaR constraint reevaluated over time induces an agent more risk averse than a logarithmic utility to take...

We investigate the capability of an equity holding tax to stabilize a VaR regulated financial market. We show that a VaR constraint induces high volatility in a distressed financial market, the phenomenon is not observed in a market with risk averse unregulated traders. A tax on equity holding...