Research and publications

Mean-Modified Value-at-Risk Optimization with Hedge Funds

Based on the normal Value-at-Risk, we develop a new Value-at-Risk method called Modified Value-at-Risk. This Modified Value-at-Risk has the property to adjust the risk, measuring with the volatility only, with the skewness and the kurtosis of the distribution of returns. The Modified Value-at-Risk allows to measure first the risk of portfolio with assets non normally distributed like hedge funds or technology stocks and to compute optimal portfolio by minimizing the Modified Value-at-Risk at a given confidence level. A revisited version of this paper was published in the Autumn 2002 issue of the Journal of Alternative Investments.

Author(s):

Laurent Favre, José-Antonio Galeano

Summary:

Based on the normal Value-at-Risk, we develop a new Value-at-Risk method called Modified Value-at-Risk. This Modified Value-at-Risk has the property to adjust the risk, measuring with the volatility only, with the skewness and the kurtosis of the distribution of returns. The Modified Value-at-Risk allows to measure first the risk of portfolio with assets non normally distributed like hedge funds or technology stocks and to compute optimal portfolio by minimizing the Modified Value-at-Risk at a given confidence level. A revisited version of this paper was published in the Autumn 2002 issue of the Journal of Alternative Investments.

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Type :	Working paper
Date :	17/09/2002
Keywords :	Asset Allocation

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Marking the priority assigned by the School to sustainability issues and building on its research programmes exploring the relationships between climate change and finance, EDHEC-Risk Institute became EDHEC-Risk Climate Impact Institute in October 2022. The Institute's mission is to help private and public decision-makers manage climate-related financial risks and make the best use of the financial tools available to transition to low-emission and climate-resilient economies. The Institute’s research programmes explore the relationships between climate change and finance and our key ambition is to become a leading academic reference point for long-term investors, helping them to manage the asset-pricing implications of climate change as well as mitigation and adaptation efforts.