Advanced Search
MyIDEAS: Login

Desirable Properties Of An Ideal Risk Measure In Portfolio Theory

Contents:

Author Info

  • SVETLOZAR RACHEV

    (University of California, Santa Barbara and, University of Karlsruhe, Germany)

  • SERGIO ORTOBELLI

    (University of Bergamo, Italy)

  • STOYAN STOYANOV

    (FinAnalytica Inc., USA)

  • FRANK J. FABOZZI

    ()
    (School of Management, Yale University, 135 Prospect Street, New Haven, CT 06520-8200, USA)

  • ALMIRA BIGLOVA

    (University of Karlsruhe, Germany)

Abstract

This paper examines the properties that a risk measure should satisfy in order to characterize an investor's preferences. In particular, we propose some intuitive and realistic examples that describe several desirable features of an ideal risk measure. This analysis is the first step in understanding how to classify an investor's risk. Risk is an asymmetric, relative, heteroskedastic, multidimensional concept that has to take into account asymptotic behavior of returns, inter-temporal dependence, risk-time aggregation, and the impact of several economic phenomena that could influence an investor's preferences. In order to consider the financial impact of the several aspects of risk, we propose and analyze the relationship between distributional modeling and risk measures. Similar to the notion of ideal probability metric to a given approximation problem, we are in the search for an ideal risk measure or ideal performance ratio for a portfolio selection problem. We then emphasize the parallels between risk measures and probability metrics, underlying the computational advantage and disadvantage of different approaches.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024908004713
Download Restriction: Access to full text is restricted to subscribers.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024908004713
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 11 (2008)
Issue (Month): 01 ()
Pages: 19-54

as in new window
Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:01:p:19-54

Contact details of provider:
Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

Order Information:
Email:

Related research

Keywords: Risk aversion; portfolio choice; investment risk; reward measure; diversification;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Chen, Zhiping & Wang, Yi, 2008. "Two-sided coherent risk measures and their application in realistic portfolio optimization," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2667-2673, December.
  2. Sergio Ortobelli & Svetlozar Rachev & Haim Shalit & Frank Fabozzi, 2009. "Orderings and Probability Functionals Consistent with Preferences," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(1), pages 81-102.
  3. Marco Corazza & Giovanni Fasano & Riccardo Gusso, 2011. "Particle Swarm Optimization with non-smooth penalty reformulation for a complex portfolio selection problem," Working Papers 2011_10, Department of Economics, University of Venice "Ca' Foscari".
  4. Alain Ruttiens, 2013. "Portfolio Risk Measures: The Time’s Arrow Matters," Computational Economics, Society for Computational Economics, vol. 41(3), pages 407-424, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:11:y:2008:i:01:p:19-54. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.