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Article

A Note on the Use of Modified Value-at-Risk

Laurent Cavenaile and Thomas Lejeune
The Journal of Alternative Investments Spring 2012, 14 (4) 79-83; DOI: https://doi.org/10.3905/jai.2012.14.4.079
Laurent Cavenaile
is a research associate for the KBL Chair in Fund Industry at HEC-University of Liège in Liège, Belgium.
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Thomas Lejeune
is an FRS-FNRS research fellow at HEC-University of Liège in Liège, Belgium.
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  • For correspondence: tlejeune@ulg.ac.be
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Abstract

While modified value-at-risk (or Cornish–Fisher value-atrisk) has been quite extensively used by practitioners and academics since its introduction, the authors show that it can be consistently used only over a limited interval of confidence levels. Confidence levels below 95.84% should never be used if one wishes to be consistent with investors’ preferences for kurtosis. In addition, the use of higher confidence levels is restricted by the value of the skewness. Failure to respect these restrictions on confidence levels results in misassessing risk and potentially overweighting assets that exhibit undesirable properties in terms of higher moments.

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The Journal of Alternative Investments: 14 (4)
The Journal of Alternative Investments
Vol. 14, Issue 4
Spring 2012
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A Note on the Use of Modified Value-at-Risk
Laurent Cavenaile, Thomas Lejeune
The Journal of Alternative Investments Mar 2012, 14 (4) 79-83; DOI: 10.3905/jai.2012.14.4.079

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A Note on the Use of Modified Value-at-Risk
Laurent Cavenaile, Thomas Lejeune
The Journal of Alternative Investments Mar 2012, 14 (4) 79-83; DOI: 10.3905/jai.2012.14.4.079
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  • Article
    • Abstract
    • MODIFIED Value-at-Risk
    • THE EFFECTS OF EXCESS KURTOSIS AND SKEWNESS ON MODIFIED Value-at-Risk
    • ILLUSTRATION
    • CONCLUDING REMARKS
    • ENDNOTES
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