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The Journal of Alternative Investments

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Primary Article

Mean-Modified Value-at-Risk Optimization with Hedge Funds

Laurent Favre and José-Antonio Galeano
The Journal of Alternative Investments Fall 2002, 5 (2) 21-25; DOI: https://doi.org/10.3905/jai.2002.319052
Laurent Favre
Associate director at the Investment Center for Research at UBS Wealth Management in Switzerland.
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  • For correspondence: laurent-za.favre@ubs.com
José-Antonio Galeano
Assistant vice president at the Banque Cantonale Vaudoise, in charge of the alternative investments, in Switzerland.
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  • For correspondence: jose.antonio.galeano@bcv.ch
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Abstract

Based on the normal value-at-risk, we develop a new value-at-risk method called modified value-at-risk. This modified value-at-risk has the property to adjust the risk, measured by volatility alone, with the skewness and the kurtosis of the distribution of returns. The modified value-at-risk allows us to measure the risk of a portfolio with non-normally distributed assets like hedge funds or technology stocks and to solve for optimal portfolio by minimizing the modified value-at-risk at a given confidence level.

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The Journal of Alternative Investments
Vol. 5, Issue 2
Fall 2002
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Mean-Modified Value-at-Risk Optimization with Hedge Funds
Laurent Favre, José-Antonio Galeano
The Journal of Alternative Investments Sep 2002, 5 (2) 21-25; DOI: 10.3905/jai.2002.319052

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Mean-Modified Value-at-Risk Optimization with Hedge Funds
Laurent Favre, José-Antonio Galeano
The Journal of Alternative Investments Sep 2002, 5 (2) 21-25; DOI: 10.3905/jai.2002.319052
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