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Modern Risk Measures For Individual Higher Education Investment Risk Evaluation

Author

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  • Vona Mate

    (University of Debrecen, Faculty of Economics and Business Administration,)

Abstract

One of the reasons why people get degree and participate in organized education is that they want to raise their human capital or signal their inner abilities to future employers by sorting themselves out. In both cases they can expect return to their investment, because they can expect higher life-time earnings than those who do not have degree. In this paper we will refer this activity as higher education investment or education investment. In this paper the investment of the state into educating their citizens will not be considered. The question of this paper will develop the findings of Vona (2014). I suggested to introduce modern risk measures because individual risk-taking became a serious question. It was considered that modern risk measures can help to solve some issues with the relation of investment and risk. However before applying some measures from a different field of science, namely investment finance and financial mathematics, to another, economics of education, there must be a very careful consideration, because there are debate over these measures applicability even on their field of science. Value at Risk is not coherent and Expected Shortfall is only one of a great deal of possible tail loss measures. For this reason it will be discussed in detail how should we should adopt the measures, what kind of data is necessary for calculating this risk measures and what kind of new insight they can bring. With the aid of a numerical example it will be shown that with expected shortfall measure we can reflect some large losses, and potential high value of diversification. We show the value at risk based measure is not coherent and this means it points out something different in this environment. It is can be an indicator of loss in opportunities for high end returns.

Suggested Citation

  • Vona Mate, 2014. "Modern Risk Measures For Individual Higher Education Investment Risk Evaluation," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 773-780, July.
    • Handle: RePEc:ora:journl:v:1:y:2014:i:1:p:773-780
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    File URL: http://anale.steconomiceuoradea.ro/volume/2014/n1/083.pdf
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    References listed on IDEAS

    as
    1. Lance Lochner & Alexander Monge-Naranjo, 2012. "Credit Constraints in Education," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 225-256, July.
    2. Grossbard,Shoshana A. (ed.), 2003. "Marriage and the Economy," Cambridge Books, Cambridge University Press, number 9780521814546.
    3. Chapman, Bruce, 2006. "Income Contingent Loans for Higher Education: International Reforms," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 2, chapter 25, pages 1435-1503, Elsevier.
    4. Grossbard,Shoshana A. (ed.), 2003. "Marriage and the Economy," Cambridge Books, Cambridge University Press, number 9780521891431.
    5. Acerbi, Carlo & Tasche, Dirk, 2002. "On the coherence of expected shortfall," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1487-1503, July.
    6. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    7. Carlo Acerbi & Dirk Tasche, 2001. "Expected Shortfall: a natural coherent alternative to Value at Risk," Papers cond-mat/0105191, arXiv.org.
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    More about this item

    Keywords

    Value at Risk; Expected Shortfall; Education Investment; Higher Education; Risk Measurement;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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