This paper considers an institutional investor who is implementing a long-term portfolio allocation strategy using forecasts of financial returns. We compare the performance of two competing macro-finance models, an unrestricted Vector AutoRegression (VAR) and a fully structural Dynamic...

Despite the use of VaR as a means to control risk, using VaR can have the opposite effect. VaR is used by bank and insurance regulators more than any other risk measure. A value-at-risk (VaR) constraint on the probability that future firm equity value will be less than a floor, when the floor is...

We extend the model presented in Bonollo et al. by introducing a multiscenario framework that allows for a richer and more realistic specification, including non-static (stochastic) probabilities of default and losses given default. Though more complex from a computational point of view, the...

This paper discusses the value-at-risk (VaR) concept and assesses the financial adequacy of the price probability determined by frequency of trades at price p. We take the price definition as the ratio of executed trade value to volume and show that it leads to price statistical moments, which...

Recent Value-at-Risk (VaR) models based on historical simulation often incorporate approaches where the volatility of the historical sample is rescaled or filtered to better reflect current market conditions. These filtered historical simulation (FHS) VaR models are now widely used in the...

We consider the VaR associated with the global loss generated by a set risk sources. We propose a sequence of simple models incorporating progressively the notions of contagion due to instantaneous correlations, of serial correlation, of evolution of the instantaneous correlations, of volatility...

The objective of this paper is to combine a real options framework with portfolio optimization techniques and to apply this new framework to investments in the electricity sector. In particular, a real options model is used to assess the adoption decision of particular technologies under...

Many practitioners annualize VaR just like the standard deviation. We show that this approach is incorrect, and a more sophisticated formula should be used for deriving a periodic VaR from parameters of the daily returns distribution. Another problem addressed here is the distribution of daily...

Value at Risk has established itself as one of the key measures of risk in both academic literature and the business world. Recent academic research has highlighted some serious shortcomings of Value at Risk, in both the inconsistency of results across models and the failure to account for...