Time-inconsistency of VaR and time-consistent alternatives

P. Cheridito, M.A. Stadje

    Research output: Contribution to journalArticleAcademicpeer-review

    30 Citations (Scopus)

    Abstract

    We show that VaR (Value-at-Risk) is not time-consistent and discuss examples where this can lead to dynamically inconsistent behavior. Then we propose two time-consistent alternatives to VaR. The first one is a composition of one-period VaR's. It is time-consistent but not coherent. The second one is a composition of average VaR's. It is a time-consistent coherent risk measure.
    Original languageEnglish
    Pages (from-to)40-46
    JournalFinance Research Letters
    Volume6
    Issue number1
    DOIs
    Publication statusPublished - 2009

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