Coherent measure of portfolio risk

Omid Ardakani

Finance Research Letters, 2023, vol. 57, issue C

Abstract: This study introduces a multivariate entropic Value at Risk (mEVaR) risk measure, broadening the conventional Value at Risk scope to a multi-asset scenario. The mEVaR is coherent and encapsulates the integrated risk of various assets in a portfolio. In addition, a new theoretical result incorporates mutual information into the mEVaR to capture tail dependence during extreme market events. The findings suggest that greater mutual dependence among assets increases risk as the benefit of diversification decreases. Examples, simulations, and empirical studies illustrate the applicability of these risk measures as tools for managing and optimizing investment portfolios.

Keywords: Entropic Value at Risk; Multivariate analysis; Mutual information; Risk management; Uncertainty (search for similar items in EconPapers)
JEL-codes: C51 C58 G11 G13 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005949

DOI: 10.1016/j.frl.2023.104222

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