The Portfolio Decision Under the VaR Constraint

The VaR, a new appearing financial risk-manage tool, have been applied widely. Many financial setups have accustomed to measure the risk of a portfolio with the VaR. So it is very necessary to discuss the portfolio choice problem under the VaR constraint. In this paper, by setting and solving the portfolio choice model under the VaR constraint, we illustrate that the use of the VaR constraint reduces the array of choice to a more manageable range. The probability of traget VaR, therefore, can be thought of as a risk tolerance assessment tool (when coupled with another measure of risk).