Abstract
As with returns, there are different measures of risk, and it is difficult to find a general consensus on how to define risk. The perception of risk varies among market participants and depends, among other things, on the composition of the portfolio, the type of investor (private or institutional), and the investor’s attitude to risk. For a pension fund or insurance company, for example, the risk is that liabilities are not covered by assets. The risk of a mutual fund is characterised by the deviation of the portfolio’s return from a benchmark. A private investor, on the other hand, defines risk as the possibility of their investment decreasing in value as the result of a loss. In this chapter, various risk measures are presented. The variance or standard deviation as well as downside risk measures, such as the semi-standard deviation and the value at risk, are discussed.
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