Risk Measures in Quantitative Finance

TL;DR

This paper provides a comprehensive chronological review of key risk measures in finance, highlighting their evolution from early concepts to modern techniques like CVaR, aimed at both academics and industry professionals.

Contribution

It offers a detailed survey of the development and variety of risk measures used in financial mathematics, including lesser-known metrics like the Treynor ratio.

Findings

Historical progression of risk measures from 1738 to present

Comparison of traditional and modern risk metrics

Identification of less common risk measures like Treynor ratio

Abstract

This paper was presented and written for two seminars: a national UK University Risk Conference and a Risk Management industry workshop. The target audience is therefore a cross section of Academics and industry professionals. The current ongoing global credit crunch has highlighted the importance of risk measurement in Finance to companies and regulators alike. Despite risk measurement's central importance to risk management, few papers exist reviewing them or following their evolution from its foremost beginnings up to the present day risk measures. This paper reviews the most important portfolio risk measures in Financial Mathematics, from Bernoulli (1738) to Markowitz's Portfolio Theory, to the presently preferred risk measures such as CVaR (conditional Value at Risk). We provide a chronological review of the risk measures and survey less commonly known risk measures e.g. Treynor ratio.