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.
Portfolio choices and VaR constraint with a defaultable asset / E. Barucci, A. Cosso. - In: QUANTITATIVE FINANCE. - ISSN 1469-7688. - 15:5(2015 May), pp. 853-864. [10.1080/14697688.2013.871643]
Portfolio choices and VaR constraint with a defaultable asset
A. CossoUltimo
2015
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.
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