|
|||||
|
|
Portfolio choices and VaR constraint with a defaultable asset |
|
| Authors: | Emilio Barucci Andrea Cosso |
| Institution: | 1. Department of Mathematics, Politecnico di Milano, Via Bonardi 9, Milano 20133, Italy.emilio.barucci@polimi.it;3. Department of Mathematics, Politecnico di Milano, Via Bonardi 9, Milano 20133, Italy. |
| Abstract: | We consider a Constant Elasticity of Variance (CEV) model for the asset price of a defaultable asset showing the so-called leverage effect (high volatility when the asset price is low). We show that a VaR constraint re-evaluated over time induces an agent more risk averse than a logarithmic utility to take more risk than in the unconstrained setting. |
| Keywords: | VaR Optimal portfolio Regulation CEV |