Open AccessVALUE AT RISK: SENSITIVITY TO DIFFERENT ASSET ALLOCATION STRATEGIES DURING RETIREMENT
Author(s) -
S. P. Uma Rao,
Deergha Raj Adhikari,
Denis O. Boudreaux
Publication year - 2020
Publication title -
international journal of business and applied social science
Language(s) - English
Resource type - Journals
ISSN - 2469-6501
DOI - 10.33642/ijbass.v6n2p7
Subject(s) - asset allocation , bond , stock (firearms) , asset (computer security) , cash flow , economics , cash , financial crisis , business , financial economics , risk premium , monetary economics , finance , portfolio , mechanical engineering , computer security , computer science , engineering , macroeconomics
There is a risk of extreme events in financial markets. This risk is often understated as we have seen in portfolios of subprime mortgages during the 2008 financial crisis. The goal of this study is to draw inferences about the cross-section of VaR estimates for different asset allocation funds. The study answers this question for 7 different asset allocations 100% stock (S), 100% T’bonds (B), 100% T’bills (or Cash), .4S+.4B+.2Cash, .6S+.4B, .8S+.2B, and .8S+.2Cash. Further, the present study determines that stock-bond-bill asset allocation over a five-year planning period which minimizes VaR while earning a minimum of 7% return is 72.3% stocks and 27.7% bonds.