Abstract
As defined in Chap. 1, risk is the degree of uncertainty regarding future net returns that will be obtained by making an investment. Similarly, in Chap. 2 it was established that market risk is the uncertainty that exists about future earnings arising from changes in market conditions (share prices, interest rates, exchange rates, commodity prices, etc.). In other words, market risk is the uncertainty that exists regarding all economic and financial variables which affect the results of a company.
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Notes
- 1.
This fact is the basis of GARCH models.
- 2.
The kurtosis is a measurement of the probability at the ends.
- 3.
For the most common distributions, this investment function is implemented in virtually all programming languages and spreadsheets.
- 4.
It is evident that if the time horizon had been two years, the coefficient σ of the probability distributions would have been what in the probabilistic model is known as \( \sigma \sqrt{\Delta t} \).
- 5.
As in the previous case, if the time frame had been two years, the coefficient σ of the probability distributions would have been what was called \( \sigma \sqrt{\Delta t} \) in the probabilistic model.
- 6.
This phenomenon has the same basis as the convexity phenomenon in the case of credit risk.
- 7.
Although not very realistic, to perform easily these calculations, normality has been assumed in all probability distributions. Assuming other types of probability distributions the results change although not what this example means.
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García, F.J.P. (2017). One-Dimensional Market Risk; Equity Risk. In: Financial Risk Management. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-41366-2_3
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DOI: https://doi.org/10.1007/978-3-319-41366-2_3
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