PL EN


2016 | 2(16) | 3 |
Article title

From duration analysis to GARCH models – An approach to systematization of quantitative methods in risk measurement

Content
Title variants
Languages of publication
Abstracts
EN
The development of scientific research has led to the very dynamic growth of methods in the area of financial risk management. This refers particularly to risk measures in which quantitative methods are applied. The paper provides a discussion on a systematization of different risk measures proposed in scientific literature and used in practice. There are four criteria proposed in the paper. The first is the concept of risk applied by distinguishing negative and neutral concept. The second criterion is the character of the risk variable, either discrete or continuous . The third criterion makes the distinction between high frequency, low severity events, corresponding to standard (normal) type of risk, and low frequency, high severity events, corresponding to extreme risk. Finally the fourth criterion distinguishes between the risk variable expressed in monetary values and risk variable expressed in time units. Using these criteria the most common groups of risk measures are discussed. The final part of the paper gives a synthetic discussion on model risk which is a risk resulting from the erratic model used in a real world. In the paper three main sources of model risk are presented and the methods to evaluate model risk are given.
Year
Volume
Issue
3
Physical description
Contributors
  • Wrocław University of Economics, Department of Financial Investments and Risk Management, Komandorska 118/120, 53-345 Wrocław, Poland, krzysztof.jajuga@ue.wroc.pl
References
  • Altman E., 1968, Financial ratios, discriminant analysis and prediction of corporate bankruptcy, Journal of Finance, 23: 589-609.
  • Black F., Scholes M., 1973, The pricing of options and corporate liabilities, Journal of Political Economy, 81: 637-654.
  • Bollerslev T., 1986, Generalized autoregressive conditional heteroskedasticity, Journal of Econometrics, 31: 307-327.
  • Brachinger H.W., Weber M., 1997, Risk as a primitive: a survey of measures of perceived risk, OR Spektrum, 19: 235-250.
  • Engle R.F., 1982, Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation, Econometrica, 50: 987-1007.
  • Macaulay F., 1938, Some theoretical problems suggested by the movements of interest rates, bond yields and stock prices in the US since 1856, NBER, Columbia University Press, New York.
  • Markowitz H.M., 1952, Portfolio selection, Journal of Finance, 7: 77-91.
  • Markowitz H.M., 1959, Portfolio selection, an efficient diversification of investments, Wiley, New York.
  • Merton R.C., 1973, Theory of rational option pricing, Bell Journal of Economics and Management Science, 4: 141-183.
  • Merton R.C., 1994, Influence of mathematical models in finance on practice: past, present and future, Philosophical Transactions, 1684: 451-463, Royal Society of London.
  • Pedersen C.S., Satchell S.E., 1998, An extended family of financial risk measures, Geneva Papers on Risk and Insurance Theory, 23: 89-117.
  • Roy A.D., 1952, Safety first and the holding of assets, Econometrica, 20: 431-449.
  • Tobin J., 1958, Liquidity preference as behavior towards risk, Review of Economic Studies, 25: 65-86.
Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.desklight-1b6164a4-d388-46b9-bf76-2bdddc17c889
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.