Asset Allocation in a Value-at-Risk Framework

26 Pages Posted: 3 Aug 1999

See all articles by Ronald Huisman

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Kees C. G. Koedijk

Tilburg University - Department of Finance

Rachel A.J. Pownall

Tilburg University - Department of Finance; Maastricht University - Department of Finance

Date Written: April 27, 1999

Abstract

In this paper we develop an asset allocation model which allocates assets by maximising expected return subject to the constraint that the expected maximum loss should meet the Value-at-Risk limits set by the risk manager. Similar to the mean-variance approach a performance index like the Sharpe index is constructed. Furthermore it is shown that the model nests the mean-variance approach in case of normally distributed expected returns. We provide an empirical analysis using two assets: US stocks and bonds. The results highlight the influence of non-normal characteristics of the expected return distribution on the optimal asset allocation.

JEL Classification: G11, G12

Suggested Citation

Huisman, Ronald and Koedijk, Kees G. and Pownall, Rachel Ann Jane, Asset Allocation in a Value-at-Risk Framework (April 27, 1999). Available at SSRN: https://ssrn.com/abstract=163970 or http://dx.doi.org/10.2139/ssrn.163970

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Kees G. Koedijk

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Rachel Ann Jane Pownall (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
2,476
Abstract Views
6,657
rank
5,164
PlumX Metrics