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The VaR at Risk

Galichon, Alfred (2010), The VaR at Risk, International Journal of Theoretical and Applied Finance, 13, 4, p. 503-506. http://dx.doi.org/10.1142/S0219024910005875

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Type
Article accepté pour publication ou publié
Date
2010
Journal name
International Journal of Theoretical and Applied Finance
Volume
13
Number
4
Publisher
World Scientific
Pages
503-506
Publication identifier
Metadata
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Author(s)
Galichon, Alfred
Abstract (EN)
I show that the structure of the firm is not neutral in respect to regulatory capital budgeted under rules which are based on the Value-at-Risk. Indeed, when a holding company has the liberty to divide its risk into as many subsidiaries as needed, and when the subsidiaries are subject to capital requirements according to the Value-at-Risk budgeting rule, then there is an optimal way to divide risk which is such that the total amount of capital to be budgeted by the shareholder is zero. This result may lead to regulatory arbitrage by some firms.
Subjects / Keywords
Value-at-Risk
JEL
D84 - Expectations; Speculations
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
L22 - Firm Organization and Market Structure