Despite the use of VaR as a means to control risk, using VaR can have the opposite effect. VaR is used by bank and insurance regulators more than any other risk measure. A value-at-risk (VaR) constraint on the probability that future firm equity value will be less than a floor, when the floor is...

Despite the use of VaR as a means to control risk, using VaR can have the opposite effect. VaR is used by bank and insurance regulators more than any other risk measure. A value-at-risk (VaR) constraint on the probability that future firm equity value will be less than a floor, when the floor is...

The marginal price of risk for a manager who maximizes his firm's expected value given a VaR constraint, otherwise known as a probability-of-ruin or Telser safety-first constraint, is the contract's expected payoff or its expected payoff given that the firm's value equals the floor. This price...