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 language | English |
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Pages (from-to) | 40-46 |
Journal | Finance Research Letters |
Volume | 6 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2009 |