The Temporal Dimension of Risk
Journal
Journal of risk : JOR
ISSN
1465-1211
Type
journal article
Date Issued
2017-01-11
Author(s)
Abstract (De)
Multi-period measures of risk account for the path that the value of an investment portfolio takes. In the context of probabilistic risk measures, the focus has traditionally been on the magnitude of investment loss, and not on the dimension associated with the passage of time. In this paper, the concept of a temporal path-dependent risk measure is mathematically formalized in order to capture the risk associated with the temporal dimension of a stochastic process, and its theoretical properties are analyzed. We then study the temporal dimension of investment drawdown (its duration), which measures the length of excursions below a running maximum. Its properties in the context of risk measures are analyzed both theoretically and empirically. In particular, we show that duration captures serial correlation in the returns of two major asset classes. We conclude by discussing the challenges of path-dependent temporal risk estimation in practice.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Refereed
Yes
Publisher
Incisive Media
Publisher place
London
Volume
19
Number
3
Start page
57
End page
83
Division(s)
Eprints ID
251769
File(s)![Thumbnail Image]()
open.access
Name
temporal_risk.pdf
Size
467.18 KB
Format
Adobe PDF
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