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Coherent Portfolio Separation — Inherent Systemic Risk?

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  • NILS CHR. FRAMSTAD

    (The Financial Supervisory Authority of Norway (Kredittilsynet), P.O. Box 100 Bryn, NO-0611 Oslo, Norway)

Abstract

A stylized market risk model is studied. It turns out that quantifying risk by quantile-VaR, coherent risk measures or other functionals that are positively homogeneous, has a consequence akin to assuming multi-normal returns, namely a two fund separation property. Heuristic arguments indicate that this may be a source of systemic risk to the financial industry.

Suggested Citation

  • Nils Chr. Framstad, 2004. "Coherent Portfolio Separation — Inherent Systemic Risk?," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 7(07), pages 909-917.
    • Handle: RePEc:wsi:ijtafx:v:07:y:2004:i:07:n:s0219024904002712
    DOI: 10.1142/S0219024904002712
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    References listed on IDEAS

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    1. Riedel, Frank, 2004. "Dynamic coherent risk measures," Stochastic Processes and their Applications, Elsevier, vol. 112(2), pages 185-200, August.
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