F. Lamantia and D. Rossello (Italy)
Risk measures, risk management, hedging, Brownian functionals, Monte Carlo simulation.
Modern risk management faces uncertainty unfolding in fixed time horizon related to the firm's investment strategies. Publicized financial disasters suggest the need for a measure dynamically consistent with hedging or arbitrage strategies which produce negative cash flows within a certain horizon. The purpose of this paper is to address the issue of constructing a dynamic version of Value at Risk that could be useful when monitoring intermediate profits and losses. We call the resulting risk measure dynamic VaR, providing a construction more oriented to implementation as opposite to axiomatic results of a recent body of literature.
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