Affiliation:
1. National and Kapodistrian University of Athens, Greece
Abstract
The purpose of this chapter is to address the main developments and challenges on risk assessment and portfolio management. The former innovation in modern portfolio theory, Markowitz, has been succeeded from linear and non-linear optimization techniques that improve portfolio efficiency. Special emphasis is given on Roy's seminal work on “Safety First Criterion” which advocates that the safety of investments should be prioritized. Thus, an investment should be chosen in a way that it has the lowest probability of falling short of a required threshold of investors. This motivated Markowitz to advocate a downside risk measure based on semivariance. It captures the notion of risk as failure to meet some minimum target. It is influenced by returns below the target rate. It focuses on investors' concern with downside variability and loss reduction. This chapter offers a critical reflection of these recent developments and could be of interest for individual and institutional investors.
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