Abstract
Risk management through marginal rebalancing is important for institutional investors due to the size of their portfolios. We consider the problem of improving marginally portfolio VaR and CVaR through a marginal change in the portfolio return characteristics. We study the relative significance of standard deviation, mean, tail thickness, and skewness in a parametric setting assuming a Student’s t or a stable distribution for portfolio returns. We also carry out an empirical study with the constituents of DAX30, CAC40, and SMI. Our analysis leads to practical implications for institutional investors and regulators.
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Notes
Skewness and kurtosis are estimated in a robust way since the classical estimator is sensitive to outliers.
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Rachev gratefully acknowledges research support by grants from the Deutschen Forschungsgemeinschaft and the Deutscher Akademischer Austausch Dienst.
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Stoyanov, S.V., Rachev, S.T. & Fabozzi, F.J. Sensitivity of portfolio VaR and CVaR to portfolio return characteristics. Ann Oper Res 205, 169–187 (2013). https://doi.org/10.1007/s10479-012-1142-1
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DOI: https://doi.org/10.1007/s10479-012-1142-1