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Portfolio Selection Based on Modified CoVaR in Gaussian Framework

Author

Listed:
  • Piotr Jaworski

    (Institute of Mathematics, University of Warsaw, 02-097 Warszawa, Poland)

  • Anna Zalewska

    (Faculty of Mathematics and Information Science, Warsaw University of Technology, 00-662 Warszawa, Poland)

Abstract

We study a Mean-Risk model, where risk is measured by a Modified CoVaR (Conditional Value at Risk): CoVaR α , β ≤ ( X | Y ) = V a R β ( X | Y + V a R α ( Y ) ≤ 0 ) . We prove that in a Gaussian setting, for a sufficiently small β , such a model has a solution. There exists a portfolio that fulfills the given constraints and for which the risk is minimal. This is shown in relation to the mean–standard deviation portfolio, and numerical examples are provided.

Suggested Citation

  • Piotr Jaworski & Anna Zalewska, 2024. "Portfolio Selection Based on Modified CoVaR in Gaussian Framework," Mathematics, MDPI, vol. 12(23), pages 1-23, November.
    • Handle: RePEc:gam:jmathe:v:12:y:2024:i:23:p:3766-:d:1532731
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