Static and dynamic VaR constrained portfolios with application to delegated portfolio management
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We give a closed-form solution to the single-period portfolio selection problem with a Value-at-Risk (VaR) constraint in the presence of a set of risky assets with multivariate normally distributed returns and the risk-less account, without short sales restrictions. The result allows to obtain a very simple, myopic dynamic portfolio policy in the multiple period version of the problem. We also consider mean-variance portfolios under a probabilistic chance (VaR) constraint and give an explicit solution. We use this solution to calculate explicitly the bonus of a portfolio manager to include a VaR constraint in his/her portfolio optimization, which we refer to as the price of a VaR constraint. © 2013 © 2013 Taylor & Francis.
Keywordsdelegated portfolio management
dynamic portfolio selection
mean-variance efficient portfolios
probabilistic chance constraint
Published Version (Please cite this version)http://dx.doi.org/10.1080/02331934.2013.854785
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