Corpus ID: 226278383

The importance of dynamic risk constraints for limited liability operators

@article{Armstrong2020TheIO,
  title={The importance of dynamic risk constraints for limited liability operators},
  author={J. Armstrong and D. Brigo and Alex S. L. Tse},
  journal={arXiv: Portfolio Management},
  year={2020}
}
Previous literature shows that prevalent risk measures such as Value at Risk or Expected Shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio optimisation. However, these conclusions hold only when the constraints are static in the sense that the risk measure is just applied to the terminal portfolio value. In this paper, we consider a portfolio optimisation problem featuring S-shaped utility and a… Expand

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