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Optimal portfolios with minimum capital requirements
Year Of Publication: 2010
Month Of Publication: May
Pages: 37
Download Count: 13
View Count: 1451
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 5-30-2010
Publisher: Administrator
Summary
We propose a novel approach to active risk management based on the Basel II regulations
to obtain optimal portfolios with minimum capital requirements. In order to avoid regulatory penalties due to an excessive number of value-at-risk (VaR) violations, capital requirements are minimized subject to a given number of violations over the previous trading year. An empirical application for three portfolios involving different types of assets demonstrates that the proposed approach delivers an improved balance between capital requirement levels and the number of VaR exceedances. Furthermore, the risk-adjusted performance of the proposed approach is superior to that of minimum-VaR portfolios.
Document published in Journal of Banking & Finance (volume 36, number 7) July 2012, 1928-1942.
http://dx.doi.org/10.1016/j.jbankfin.2012.03.001
Author(s)
van Dijk, Dick Sign in to follow this author
Ruiz, Esther Sign in to follow this author
Santos, Andre A. P. Sign in to follow this author
Nogales, Francisco, J. Sign in to follow this author
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