Informatics and Applications
2018, Volume 12, Issue 1, pp 31-39
CONTINUOUS VaR-CRITERION IN SCENARIO MARKETS
Abstract
The paper investigates problems of using continuous VaR-criterion (CC-VaR) in scenario market as a discrete analog of ideal theoretical one-period option market. The participation of an investor in the market supposes that the investor prepares a forecast of future underlier's price distribution and sets the risk-preferences function. A discrete optimization algorithm as the result of projecting the theoretical algorithm based on the Newman-Pearson procedure onto scenario market is suggested. An example of the market with three scenarios, for which the optimality can be broken, is adduced. However, such violations occur seldom and are insignificant.
To improve the quality of solutions, randomization of portfolio weights as remedy of smoothing the distribution function is proposed. Special algorithms for calculations connected with yield of randomized portfolios are suggested. The exposition is illustrated by diagrams.
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[+] About this article
Title
CONTINUOUS VaR-CRITERION IN SCENARIO MARKETS
Journal
Informatics and Applications
2018, Volume 12, Issue 1, pp 31-39
Cover Date
2018-03-30
DOI
10.14357/19922264180104
Print ISSN
1992-2264
Publisher
Institute of Informatics Problems, Russian Academy of Sciences
Additional Links
Key words
continuous VaR-criterion (CC-VaR); scenario; forecast density; price density; investor's risk-preferences function (r.p.f.); optimal portfolio; investment amount; income; yield; randomization
Authors
G. A. Agasandyan 
Author Affiliations
A. A. Dorodnicyn Computing Center, Federal Research Center "Computer Science and Control" of the Russian Academy of Sciences, 40 Vavilov Str., Moscow 119333, Russian Federation
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