A Note on the Use of the Modified Value-at-Risk

While the Modified Value-at-Risk (or Cornish Fisher Value-at-Risk) has been quite extensively used by practitioners and academics since its introduction, we show that it can be consistently used only over a limited interval of confidence level. Confidence level below 95.84% should never be used for the Modified Value-at-Risk to be consistent with investors' preferences for kurtosis. In addition, the use of higher confidence level is restricted by the value of the skewness. Failure to respect these restrictions on confidence levels results in mistakenly assessing assets' risk and potentially in overweighting assets which exhibit undesirable properties in terms of higher moments.