Analysis, Investment Decisions Based On Value At Risk Preferences

Since the 1 970s, the global financial market has become greatly different, which make the main risk that financial institution faced with having converted from the credit risks to the market risks. Among many methods to measure the market risk, value at Risk is the most widespread. Value at Risk, which was put forward in 1963 by W. Baumol for the first time at the magazine named Management science, and was first published its system-RiskMetrics in 1994 by J.P. Morgan bank, has been widely used from then on.The ultimate goal of the risk measurement is to select the optimal portfolio and risk management. At present, however, the study to select the optimal portfolio model by value at Risk is very few except that Pro. Pflug from Norway University of science and Techonology has done it. Two main causes could account for it. For one thing, it is rather hard to calculate value at Risk, especially for portfolio consisted of a variety of investing instruments. For another, Value at Risk lacks in better mathmatic nature, for example, subadditve.Taking all these factors into account, the author has done three things n this paper. Above all, the paper builds the model to select the optimal portfolio by the historic value at Risk by simulation. Secondly, proceeded from behavioral financial theory and based upon the investors?finding optimal the process, this paper measures the investor risk preference by value at Risk and analyses the model of finding the optimal portfolio by studying this preference. At last, as valve at Risk is unable to measure the risk exactly and lack of subadditive, therefore, it is suggested in the international that Expected shortfall should be used to measure risk. Some nature and calculative idea has been researched carefully in this paper.