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Risk Measures and their Applications in Asset Management
Year Of Publication: 2008
Month Of Publication: August
Pages: 24
Download Count: 19
View Count: 1653
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 12-27-2010
Publisher: Administrator
Summary
Several approaches exist to model decision making under risk, where risk can be broadly defined as the effect of variability of random outcomes. One of the main approaches in the practice of decision making under risk uses mean-risk models; one such well-known is the classical Markowitz model, where variance is used as risk measure. Along this line, we consider a portfolio selection problem, where the asset returns have an elliptical distribution. We mainly focus on portfolio optimization models constructing portfolios with minimal risk, provided that a prescribed expected return level is attained. In particular, we model the risk by using Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR). After reviewing the main properties of VaR and CVaR, we present short proofs to some of the well-known results. Finally, we describe a computationally efficient solution algorithm and present numerical results.
Author(s)
Noyan, Nilay Sign in to follow this author
Birbil, S. Ilker Sign in to follow this author
Frenk, J.B.G. Sign in to follow this author
Kaynar, Bahar Sign in to follow this author
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