Measuring Market Risk in Asset Management
Journal of Portfolio Management
In this article, we offer a practical definition of market risk and show how to measure it.
Beginning with an overview of fundamental concepts, such as asset returns, volatility, and correlation, we proceed to explain the estimation of widely used risk metrics, namely the value at risk (VaR) and the expected shortfall (ES), as well as the less commonly known expectile-based VaR (EVaR).
Furthermore, we illustrate how these risk measures can be integrated into portfolio selection strategies.
To provide practical insight, we consider a portfolio comprising two bonds and two stocks as a case study. Through this example, we apply the discussed concepts in real-world scenarios.
Additionally, we present several examples to enhance reader comprehension and facilitate a deeper understanding of the material.