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VaR – Telser's Criterion Recall that the a% Value-at-Risk (VaR) R1 is given by the return such that a% of returns are below R1,. Hence, P(Rp < R1) < a. Assuming again that returns are normally distributed, we obtain for the constraint E[Rp] > R1 – Þ'(@)op where -1 is the inverse of the standard normal cdf and, thus, gives the VaR at level a. One could now choose the portfolio with the highest E[Rp] that satisfies this constraint (Telser's criterion). One problem is that the choice set might be empty. Rp Figure : Optimal Portfolio Choice - Telser's Criterion
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Related Book For
Intermediate Accounting principles and analysis
ISBN: 978-0471737933
2nd Edition
Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso
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