Time-inconsistency of VaR and time-consistent alternatives

P. Cheridito; M.A. Stadje

doi:10.1016/j.frl.2008.10.002

Time-inconsistency of VaR and time-consistent alternatives

P. Cheridito, M.A. Stadje

Onderzoeksoutput: Bijdrage aan tijdschrift › Tijdschriftartikel › Academic › peer review

41 Citaten (Scopus)

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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.

Originele taal-2	Engels
Pagina's (van-tot)	40-46
Tijdschrift	Finance Research Letters
Volume	6
Nummer van het tijdschrift	1
DOI's	https://doi.org/10.1016/j.frl.2008.10.002
Status	Gepubliceerd - 2009

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10.1016/j.frl.2008.10.002

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Time-inconsistency of VaR and time-consistent alternatives

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