The Non-Monotonicity of Value-at-Risk and the Validity of Risk Measures Over Different Horizons
13 Pages Posted: 16 Aug 2005
Date Written: November 17, 2006
Abstract
Value-at-Risk and Conditional Tail Expectations are central tools of modern risk management. As risk measures based on the actual probability distribution, these can eventually decrease with the investment horizon. This is not evidence that stock investments are decreasingly risky in the long-run. Instead, equity-risk increases monotonically at long horizons. This is apparent from economically-motivated risk measures based on risk-neutral probabilities.
Keywords: Decisions under Uncertainty, Value-at-Risk, Conditional Tail Expectation, Option Pricing Theory
JEL Classification: D81, D91, D92, G11, G13, G20
Suggested Citation: Suggested Citation
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