RT Generic
T1 Capital requirements: Are they the best solution?
A1 Balbás, Alejandro
A2 Universidad Carlos III de Madrid. Departamento de Economía de la Empresa, 
AB General risk functions are becoming very important in finance and insurance. Many risk functionsare interpreted as initial capital requirements that a manager must add and invest in a risk-freesecurity in order to protect his clients wealth. Nevertheless, until now it has not been proved thatan alternative investment will be outperformed by the riskless asset.This paper deals with a complete arbitrage free market and a general expectation bounded riskmeasure and analyzes whether the investment in the riskless asset of the capital requirements isoptimal. It is shown that it is not optimal in many important cases. For instance, if the risk measureis the CVaR and we consider the assumptions of the CAPM or the Black and Scholes model.Furthermore, the Black and Scholes model the explicit expression of the optimal strategy isprovided, and it is composed of several put options. If the confidence level of the CVaR is close to100% then the optimal strategy becomes a classical portfolio insurance strategy. This may be asurprising and important finding for both researchers and practitioners. In particular, managers candiscover how to reduce the level of initial capital requirements by trading options.
YR 2008
FD 2008-12
LK https://hdl.handle.net/10016/3367
UL https://hdl.handle.net/10016/3367
LA eng
DS e-Archivo
RD 19 may. 2024