Static and dynamic VaR constrained portfolios with application to delegated portfolio management

Date
2013
Authors
Pinar, M.Ç.
Advisor
Instructor
Source Title
Optimization
Print ISSN
2331934
Electronic ISSN
Publisher
Volume
62
Issue
11
Pages
1419 - 1432
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Abstract

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.

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Keywords
delegated portfolio management, dynamic portfolio selection, mean-variance efficient portfolios, probabilistic chance constraint, value-at-risk
Citation
Published Version (Please cite this version)