Optimal portfolio selection in a Value-at-Risk framework

R. Campbell, R. Huisman, K. Koedijk

Research output: Contribution to JournalArticleAcademicpeer-review


In this paper, we develop a portfolio selection model which allocates financial assets by maximising expected return subject to the constraint that the expected maximum loss should meet the Value-at-Risk limits set by the risk manager. Similar to the mean-variance approach a performance index like the Sharpe index is constructed. Furthermore when expected returns are assumed to be normally distributed we show that the model provides almost identical results to the mean-variance approach. We provide an empirical analysis using two risky assets: US stocks and bonds. The results highlight the influence of both non-normal characteristics of the expected return distribution and the length of investment time horizon on the optimal portfolio selection. © 2001 Elsevier Science B.V.
Original languageEnglish
Pages (from-to)1789-1804
JournalJournal of Banking and Finance
Issue number9
Publication statusPublished - Sept 2001
Externally publishedYes

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