Assessing financial risks using a multicriteria sorting procedure: the case of country risk assessment

Michael Doumpos and Constantin Zopounidis

Omega, 2001, vol. 29, issue 1, 97-109

Abstract: The assessment of financial risks is a problem of major interest for corporate entities (organizations, financial institutions, firms, etc.). The vulnerable economic and financial environments necessitate the development of operational approaches to measure and control financial risks. Most of the methodologies that have been proposed in the past employ a probabilistic notion of risk. This paper proposes an alternative approach to measure financial risks, considering their multidimensional nature. The proposed approach is based on the multicriteria decision aid (MCDA) method Multi-Group Hierarchical DIScrimination (M.H.DIS). The aim of the M.H.DIS method within the financial risk assessment context is to develop a set of additive utility functions that classify the considered alternatives (firms, investment projects, portfolios, countries, etc.) into predefined risk classes. The efficiency of the method is illustrated through a case study regarding the country risk assessment problem. Using the M.H.DIS method a discrimination model is developed that classifies the countries into four groups, and measures the corresponding creditworthiness and risk of the countries. Several validation tests are performed in order to compare the classification results obtained through M.H.DIS to the results obtained through multiple discriminant analysis.

Keywords: Classification; Country; risk; Discriminant; analysis; Multicriteria (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305-0483(00)00028-1
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:29:y:2001:i:1:p:97-109

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().