Article ID Journal Published Year Pages File Type
5069817 Finance Research Letters 2009 7 Pages PDF
Abstract

We show that VaR (Value-at-Risk) is not time-consistent and discuss examples where this can lead to dynamically inconsistent behavior. Then we propose two time-consistent alternatives to VaR. The first one is a composition of one-period VaR's. It is time-consistent but not coherent. The second one is a composition of average VaR's. It is a time-consistent coherent risk measure.

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Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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Time-inconsistency of VaR and time-consistent alternatives
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