Incorporates: Balance Sheet
Online from: 1999
Subject Area: Accounting and Finance
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|Title:||Alternative measures to value at risk|
|Author(s):||Colin J. Thompson, (Department of Mathematics and Statistics, University of Melbourne, Melbourne, Australia), Michael A. McCarthy, (School of Botany, University of Melbourne, Melbourne, Australia)|
|Citation:||Colin J. Thompson, Michael A. McCarthy, (2008) "Alternative measures to value at risk", Journal of Risk Finance, The, Vol. 9 Iss: 1, pp.81 - 88|
|Keywords:||Distribution functions, Portfolio investment, Risk analysis, Risk management|
|Article type:||Research paper|
|DOI:||10.1108/15265940810842438 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – The purpose of this article is to introduce a new method of estimating risk as an alternative to value at risk (VaR), drawing on the risk assessment literature in environmental science.
Design/methodology/approach – A commonly used and accepted measure of market risk is VaR, defined as the difference between initial portfolio value and a probabilistic lower bound
Findings – It is argued that the resulting expected minimum portfolio value over the time frame
Research limitations/implications – Analytical results are presented for lognormal distributions for returns. Results for other models can be easily obtained from simulation.
Practical implications – The new measure of risk recognizes that investors might be sensitive to risks of decline in the value of a portfolio at any time within a given time horizon, not just at the end of the anticipated period of investment. The expected minimum portfolio value measures the largest loss that is expected at some stage over that period.
Originality/value – A new measure of risk is presented that arises from literature on risk assessment in environmental science. It is complementary to VaR for assessing risk.
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