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Investment Risk Management$
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H. Kent Baker and Greg Filbeck

Print publication date: 2015

Print ISBN-13: 9780199331963

Published to Oxford Scholarship Online: January 2015

DOI: 10.1093/acprof:oso/9780199331963.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 29 November 2021

Measuring and Managing Risk

Measuring and Managing Risk

(p.17) 2 Measuring and Managing Risk
Investment Risk Management

Raimund M. Kovacevic

Georg CH. Pflug

Alois Pichler

Oxford University Press

This chapter provides an overview of statistical and probabilistic approaches in quantitative risk management. The discussion assumes complete knowledge of the profit-and-loss distribution, which is estimated on the basis of historic data, forecasts, and expert opinion. Risk is measured using statistical parameters of the profit-and-loss distribution, which characterize some but not all of its features. Various risk measures are discussed in light of their properties. Some measures are well known and widely used while others are less popular but exhibit useful features. Risk measures are not only used in quantifying risk but also in financial decision making such as in portfolio and investment planning or asset-liability management. In such situations, risk is either a constraint by fixing a risk budget that cannot be exceeded or an objective to be minimized. Some typical problems in decision making that are related to risk management are discussed for the purpose of incorporating the available instruments and risk management actions into the formulation of the corresponding optimization problems.

Keywords:   cost structure, risk budget, firm financing, investment decisions, agency conflicts, coordination problems, insurance, risk measures

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