Optimal dynamic trading strategies with risk limits
成果类型：
Article
署名作者：
Cuoco, Domenico; He, Hua; Isaenko, Sergei
署名单位：
University of Pennsylvania; Concordia University - Canada
刊物名称：
OPERATIONS RESEARCH
ISSN/ISSBN：
0030-364X
DOI：
10.1287/opre.1070.0433
发表日期：
2008
页码：
358-368
关键词：
摘要：
Value at Risk (VaR) has emerged in recent years as a standard tool to measure and control the risk of trading portfolios. Yet, existing theoretical analysis of the optimal behavior of a trader subject to VaR limits has produced a negative view of VaR as a risk-control tool. In particular, VaR limits have been found to induce increased risk exposure in some states and an increased probability of extreme losses. However, these conclusions are based on models that are either static or dynamically inconsistent. In this paper, we formulate a dynamically consistent model of optimal portfolio choice subject to VaR limits and show that the concerns expressed in earlier papers do not apply if, consistently with common practice, the VaR limit is reevaluated dynamically. In particular, we find that the optimal risk exposure of a trader subject to a VaR limit is always lower than that of an unconstrained trader and that the probability of extreme losses is also lower. We also consider risk limits formulated in terms of tail conditional expectation (TCE), a coherent risk measure often advocated as an alternative to VaR, and show that in our dynamic setting it is always possible to transform a TCE limit into an equivalent VaR limit, and conversely.