Financial Risk in Investments and its Modeling

Bogdan Popa and Jenica Popescu
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Bogdan Popa: University of Craiova
Jenica Popescu: University of Craiova

Finante - provocarile viitorului (Finance - Challenges of the Future), 2024, vol. 1, issue 26, 19-27

Abstract: The management of any economic entity constantly has a predictive character; it cannot limit itself to the solution of current problems but conducts prospections on the future, directing the organization's activity over time and ensuring its preparation for confronting future market phenomena. Achieving these goals requires, among other things, permanent and complex knowledge of the risks to which one is exposed, of the current and future level of the production cost. Risk research has led to a shift from an approach based on the negative dimension of risk to a complex one, where risk is seen as both a threat and an opportunity. Relatively recently, the approach to risk began to include the positive aspect represented by the possibility of generating opportunities through appropriate management and specific strategy. The paper presents two ways of modelling financial risk using theories from specialized literature and which are applied in an extensive manner in other works, especially in those with practical applicability. We considered two probabilistic models, namely the application of probability distributions and sensitivity analysis, which can be used for companies when it comes to risk analysis of investment projects, these being considered random variables.

Keywords: : investments; financial risk; risk monitoring; probability distributions; sensitivity analysis (search for similar items in EconPapers)
JEL-codes: D81 E32 G32 G33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aio:fpvfcf:v:1:y:2024:i:26:p:19-27

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