The var at risk Galichon, Alfred

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Galichon, Alfred
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International Journal of Theoretical and Applied Finance
Capital budgets; Capital Budgeting; [shs:eco] humanities and social sciences/economies and finances
To access, purchase, authenticate, or subscribe to the full-text of this article, please visit this link: Byline: ALFRED GALICHON I show that the structure of the firm is not neutral with respect to regulatory capital budgeted under rules which are based on the Value-at-Risk. Indeed, when a holding company has the liberty to divide its risk into as many subsidiaries as needed, and when the subsidiaries are subject to capital requirements according to the Value-at-Risk budgeting rule, then there is an optimal way to divide risk which is such that the total amount of capital to be budgeted by the shareholder is zero. This result may lead to regulatory arbitrage by some firms.
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