VaR Risk Measures versus Traditional Risk Measures: an Analysis and Survey

Kaplanski, Guy and Kroll, Yoram (2002): VaR Risk Measures versus Traditional Risk Measures: an Analysis and Survey. Published in: Journal of Risk , Vol. 4, No. 3 (2002): pp. 1-27.

Abstract

The article presents an analysis and survey regarding the validity of VaR risk measures in comparison to traditional risk measures. Individuals are assumed to either maximize their expected utility or possess a lexicographic utility function. The analysis is carried out for generally distributed functions and for the normal and lognormal distributions. The main conclusion is that although VaR is an inadequate measure within the expected utility framework, it is at least as good as other traditional risk measures. Moreover, it can be improved by modified versions such as the Accumulated-VaR (Mean-Shortfall) Assuming a lexicographic expected utility strengthens the argument for using AVaR as a legitimate risk measure especially in the case of a regulated firm.

• Item Type: MPRA Paper
• Language: English
• Keywords: Value-at-Risk, Risk management, Risk measures, Mean-Shortfall
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C65 - Miscellaneous Mathematical Tools; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C69 - Other

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