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Sensitivity of portfolio VaR and CVaR to portfolio return characteristics |
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| Authors: | Stoyan V Stoyanov Svetlozar T Rachev Frank J Fabozzi |
| Institution: | 1. EDHEC Business School, EDHEC-Risk Institute-Asia, 1 George Street, #07-02, Singapore, 049145, Singapore 2. Stony Brook University, Stony Brook, NY, USA 3. University of Karlsruhe, Karlsruhe, Germany 4. FinAnalytica, Inc., New York, NY, USA 5. EDHEC Business School, Nice, France 6. 858 Tower View Circle, New Hope, PA, 18938, USA |
| Abstract: | Risk management through marginal rebalancing is important for institutional investors due to the size of their portfolios. We consider the problem of improving marginally 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. |
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