Tail risk targeting: Target VaR and CVaR strategies

Rickenberg, Lars

DOI: https://doi.org/10.2139/ssrn.3444999
URL: https://ssrn.com/abstract=3444999
Document Type: Working paper
Year of publication: 2019
The title of a journal, publication series: SSRN Working Paper Series
Place of publication: Rochester, NY
Publication language: English
Institution: Business School > ABWL, Risikotheorie, Portfolio Management u. Versicherungswissenschaft (Albrecht)
Subject: 330 Economics
Abstract: We present dynamic trading strategies that target a predefined level of risk measured by volatility, Value-at-Risk (VaR) or Conditional-Value-at-Risk (CVaR). Recent studies have shown that volatility targeting increases the risk-adjusted performance and heightens utility gains for mean-variance investors. We find that downside risk targeting outperforms volatility targeting in terms of a higher Sharpe Ratio, better drawdown protection and higher utility gains for mean-variance, CRRA and loss-averse investors. In particular, a loss-averse investor is not willing to pay a positive fee to switch from a static portfolio to a volatility managed strategy, whereas this investor would pay a fee of 18% per year to have access to the downside risk managed strategy. We also find that the performance of risk targeting can further be enhanced by switching between volatility and CVaR targeting based on estimates of whether the market will be in a bull or bear regime.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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Rickenberg, Lars (2019) Tail risk targeting: Target VaR and CVaR strategies. SSRN Working Paper Series Rochester, NY [Working paper]

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