Tradable Measure Of Risk
Source: Munich Personal Repec Archive
The main idea of this paper is to introduce Tradeable Measures of Risk as an objective and model independent way of measuring risk. The present methods of risk measurement, such as the standard Value-at-Risk supported by BASEL II, are based on subjective assumptions of future returns. Therefore two different models applied to the same portfolio can lead to different values of a risk measure. In order to achieve an objective measurement of risk, the authors introduce a concept of Realized Risk which they define as a directly observable function of realized returns.