Enkeleda Shehi – Tirana Business University College, Faculty of Business and Law, Rruga Rezervat e Shtetit, Lundër, Tiranë, Shqipëri, Albania
Roel Shehi – Actuarial Department, Merccer Deutschland GmbH, Müllerstraße 3, 80469 München, Germany
Keywords:
Risk measures;
Coherent risk;
Value at Risk (VaR);
Conditional Tail Expectation
(CTE);
Financial risk management
Abstract: Risk is an inherent part of our daily personal and professional life, and it can be found in every aspect of it. Particularly in finance and economics, managing and understanding risk is very important, yet defining and measuring it is a challenge due to its subjective nature.
Effective risk management requires different tools and methodologies, many of which originated from Markowitz’s work in 1952. This paper examines risk measures, emphasizing the concept of coherence introduced by Artzner et al. (1999). A coherent risk measure satisfies monotonicity, positive homogeneity, sub-additivity, and translation invariance.
Key measures, including variance, skewness, Value at Risk (VaR), and Conditional Tail Expectation (CTE) will be analyzed in this paper. While widely used, variance and skewness lack coherence. VaR, popular in finance, also fails to meet coherence standards. In contrast, CTE emerges as a coherent and reliable metric, addressing VaR’s shortcomings by focusing on extreme scenarios.
8th International Scientific Conference on Recent Advances in Information Technology, Tourism, Economics, Management and Agriculture – ITEMA 2024 – Conference Proceedings, Hybrid (Zayed University, Dubai, UAE), October 24, 2024
ITEMA Conference Proceedings published by: Association of Economists and Managers of the Balkans – Belgrade, Serbia
ITEMA conference partners: Faculty of Economics and Business, University of Maribor, Slovenia; Faculty of Organization and Informatics, University of Zagreb, Varaždin; Faculty of Geography, University of Belgrade, Serbia; Institute of Marketing, Poznan University of Economics and Business, Poland; Faculty of Agriculture, Banat’s University of Agricultural Sciences and Veterinary Medicine ”King Michael I of Romania”, Romania
ITEMA Conference 2024 Conference Proceedings: ISBN 978-86-80194-89-9, ISSN 2683-5991, DOI: https://doi.org/10.31410/ITEMA.2024
Creative Commons Non Commercial CC BY-NC: This article is distributed under the terms of the Creative Commons Attribution-Non-Commercial 4.0 License (https://creativecommons.org/licenses/by-nc/4.0/) which permits non-commercial use, reproduction and distribution of the work without further permission.
