The use of Value-at-Risk methodology in assessment of investor's risk attitudes on the precious metals market.

Dominik M. Krężołek 

Department of Demography and Economic Statistics, University of Economics in Katowice, 1 Maja, Katowice 40-287, Poland

Abstract

Investment activity in economy characterized by high level of uncertainty and volatility requires different view on the risk assessment. One of the most popular risk measure is Value-at-Risk. However, despite of its attractiveness this measure suffers from significant drawback – is not subadditive. This property is the key issue in portfolio analysis and assumes that the total risk of portfolio is not hohger than the sum of its individual risks. Therefore another risk measure has been proposed – Tail Value-at-Risk (TVaR) defined as a conditional loss beyond Value-at-Risk. However, the choice of risk measure should be related to investor’s attitudes to risk. In this paper the new risk measures based on Value-at-Risk methodology are proposed, called the GlueVaR risk measures, The family of GlueVaR risk measures can be defined as a linear combination of VaR and TVaR. It allows for calculating the level of investment loss depending on investment’s attitudes to risk. Moreover, the GlueVaR risk measure meets the subadditivity property. The application of the GlueVaR risk measure is presented on the precious metals market.

 

Presentation: Oral at Current Economic and Social Topics 2015, by Dominik M. Krężołek
See On-line Journal of Current Economic and Social Topics 2015

Submitted: 2015-10-06 12:51
Revised:   2015-10-06 12:52