@techreport{Winker2004Hidden,
abstract = {Value at risk (VaR) has become a standard measure of portfolio risk over the last decade. It even
became one of the corner stones in the Basel II accord about banks' equity requirements. Nevertheless,
the practical application of the VaR concept suffers from two problems: how to estimate VaR and
how to optimize a portfolio for a given level of VaR? For the first problem, several approaches have
been suggested including the historical simulation method. The optimization problem can be tackled
using recent advances in heuristic optimization algorithms. However, our application to bond portfolios
shows that a solution to the two aforementioned problems gives rise to a third one: the actual VaR of
bond portfolios optimized under a VaR constraint might exceed its nominal level to a large extent. Thus,
optimizing bond portfolios under a VaR constraint might increase risk. This finding is of relevance not
only for investors, but even more so for bank regulation authorities.},
author = {Peter Winker and Dietmar Maringer},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {G28; G11; C16; C15; 330; VaR; risk; portfolio optimization; heuristic optimization; Value at Risk; Portfolio-Management; Heuristisches Verfahren; Rentenmarkt; Theorie},
language = {eng},
number = {13},
title = {The Hidden Risks of Optimizing Bond Portfolios under VaR},
type = {Research notes working paper series},
url = {http://hdl.handle.net/10419/21874},
year = {2004}
}
