Risk measurement for investment using Tail Variance Premium and Tail Standard Deviation premium

Chrisseli Lukito, Mila Novita, Suci Fratama Sari

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Information related to the tail of loss distribution especially its variability is vital since tail of distribution is related to big losses and overall risk. Risk measure that is commonly used is Tail Conditional Expectation (TCE) that measures expectation of loss that possibly occur given loss exceeded certain percentiles. However, TCE could not describe clearly the behavior and variability of loss along its tail since it only provides measure of central tendency. Additional information is needed to describe variability of loss, for instance measure of dispersion. In this paper will be discussed further about risk and variability measurement named Tail Variance Premium (TVP) and Tail Standard Deviation Premium (TSDP). They are combination of both central tendency and dispersion statistics, so they can measure variability of loss along the right tail better. TVP and TSDP could be alternative risk measure, especially when risk that is bigger than a certain threshold is concerned. Besides, we will also discuss the criteria satisfied by both risk measures with the proof for each criterion. Next, we also provide the explicit formula of TVP and TSDP for loss with normal distribution in particular. Then we will perform calculation for risk measurement of a stock, both by parametric and non-parametric method. We also show the comparison of risk measurement generated by Value-at-Risk, TCE, TVP, and TSDP.

Original languageEnglish
Title of host publicationProceedings of the International Conference on Mathematical Sciences and Technology 2018, MathTech 2018
Subtitle of host publicationInnovative Technologies for Mathematics and Mathematics for Technological Innovation
EditorsYazariah Mohd Yatim, Syakila Ahmad, Mohd Tahir Ismail, Majid Khan Majahar Ali, Rosmanjawati Abdul Rahman, Hajar Sulaiman, Norshafira Ramli, Noor Atinah Ahmad, Farah Aini Abdullah
PublisherAmerican Institute of Physics Inc.
ISBN (Electronic)9780735419315
DOIs
Publication statusPublished - 4 Dec 2019
Event1st International Conference on Mathematical Sciences and Technology 2018: Innovative Technologies for Mathematics and Mathematics for Technological Innovation, MathTech 2018 - Penang, Malaysia
Duration: 10 Dec 201812 Dec 2018

Publication series

NameAIP Conference Proceedings
Volume2184
ISSN (Print)0094-243X
ISSN (Electronic)1551-7616

Conference

Conference1st International Conference on Mathematical Sciences and Technology 2018: Innovative Technologies for Mathematics and Mathematics for Technological Innovation, MathTech 2018
CountryMalaysia
CityPenang
Period10/12/1812/12/18

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    Lukito, C., Novita, M., & Sari, S. F. (2019). Risk measurement for investment using Tail Variance Premium and Tail Standard Deviation premium. In Y. M. Yatim, S. Ahmad, M. T. Ismail, M. K. M. Ali, R. A. Rahman, H. Sulaiman, N. Ramli, N. A. Ahmad, & F. A. Abdullah (Eds.), Proceedings of the International Conference on Mathematical Sciences and Technology 2018, MathTech 2018: Innovative Technologies for Mathematics and Mathematics for Technological Innovation [050040] (AIP Conference Proceedings; Vol. 2184). American Institute of Physics Inc.. https://doi.org/10.1063/1.5136428