4. Measuring Risks

  1. Bernhard Pfaff

Published Online: 30 OCT 2012

DOI: 10.1002/9781118477144.ch4

Financial Risk Modelling and Portfolio Optimization with R

Financial Risk Modelling and Portfolio Optimization with R

How to Cite

Pfaff, B. (2012) Measuring Risks, in Financial Risk Modelling and Portfolio Optimization with R, John Wiley & Sons, Ltd, Chichester, UK. doi: 10.1002/9781118477144.ch4

Author Information

  1. Invesco Global Strategies, Germany

Publication History

  1. Published Online: 30 OCT 2012
  2. Published Print: 28 DEC 2012

ISBN Information

Print ISBN: 9780470978702

Online ISBN: 9781118477144

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Keywords:

  • expected shortfall (ES);
  • financial market risks;
  • risk measure;
  • value at risk (VaR)

Summary

Toward the end of the first decade of this century, the focus of investors shifted, not least because of the financial crisis, to the need to adequately measure risks. A proper assessment of market risks by its participants helps to ensure a smooth functioning of the financial system. This chapter briefly describes the measurement of financial market risks at the single-asset and portfolio level. The risk measures introduced in the chapter are based upon a probability model for the potential losses an investor would face. The chapter introduces the most commonly encountered measures of market risk, namely value at risk (VaR) and expected shortfall (ES) as well as the modifications thereof. It addresses the issue of their appropriateness in the portfolio context.

Controlled Vocabulary Terms

value at risk (VaR)