Risk management with multiple VaR constraints

We study the utility maximization problem under multiple Value-at-Risk constraints, which is particularly important for financial institutions which have to follow short-time VaR-type regulations under somerealistic regulatory... [ view full abstract ]

We study the utility maximization problem under multiple Value-at-Risk constraints, which is particularly important for financial institutions which have to follow short-time VaR-type regulations under somerealistic regulatory frameworks like Solvency II, but need to serve long-term liabilities. We show that multiple VaR constraints for long-term investors is useful for loss prevention at intermediate time instances andthe multiple-VaR solution at maturity on average dominates the one-VaR solution in a wide range of intermediate market scenarios, but performs worse in good and very bad market scenarios. The range of these very bad market scenarios is however rather limited.