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Value-at-risk under ambiguity aversion

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  • Rossella Agliardi

    (University of Bologna)

Abstract

This study explored the effects of ambiguity on the calculation of Value-at-Risk (VaR) using a mathematical model based on the theory of Choquet-Brownian processes. It was found that while a moderate degree of ambiguity aversion yields a higher value for VaR and Expected Shortfall (ES), the result can be reversed in a deeply ambiguous environment. Additionally, some sufficient conditions are provided for the preservation of this effect under various forms of risk aggregation. This study offers a new perspective to full awareness on capital requirement calculation as requested by international regulation.

Suggested Citation

  • Rossella Agliardi, 2018. "Value-at-risk under ambiguity aversion," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-13, December.
    • Handle: RePEc:spr:fininn:v:4:y:2018:i:1:d:10.1186_s40854-018-0095-z
    DOI: 10.1186/s40854-018-0095-z
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    References listed on IDEAS

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    1. Larry G. Epstein & Martin Schneider, 2010. "Ambiguity and Asset Markets," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 315-346, December.
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    10. Agliardi, Elettra & Agliardi, Rossella & Spanjers, Willem, 2016. "Corporate financing decisions under ambiguity: Pecking order and liquidity policy implications," Journal of Business Research, Elsevier, vol. 69(12), pages 6012-6020.
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    Cited by:

    1. Lorenzo Reus & Guillermo Alexander Sepúlveda-Hurtado, 2023. "Foreign exchange trading and management with the stochastic dual dynamic programming method," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-38, December.
    2. Wujun Lv & Tao Pang & Xiaobao Xia & Jingzhou Yan, 2023. "Dynamic portfolio choice with uncertain rare-events risk in stock and cryptocurrency markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-28, December.

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