In the context of risk measurement, a risk metric is the concept quantified by a
risk measure
In financial mathematics, a risk measure is used to determine the amount of an asset or set of assets (traditionally currency) to be kept in reserve. The purpose of this reserve is to make the risks taken by financial institutions, such as bank ...
. When choosing a risk metric, an agent is picking an aspect of perceived risk to investigate, such as
volatility or probability of default.
Risk measure and risk metric
In a general sense, a measure is a procedure for quantifying something. A metric is that which is being quantified.
In other words, the method or formula to calculate a risk metric is called a risk measure.
For example, in finance, the volatility of a stock might be calculated in any one of the three following ways:
* Calculate the sample standard deviation of the stock's returns over the past 30 trading days.
* Calculate the sample standard deviation of the stock's returns over the past 100 trading days.
* Calculate the implied volatility of the stock from some specified call option on the stock.
These are three distinct risk measures. Each could be used to measure the single risk metric volatility.
Examples
* Deaths per passenger mile (transportation)
* Probability of failure (systems reliability)
*
Volatility (finance)
* Delta (finance)
*
Value at risk
Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by ...
(finance/actuarial)
* Probability of default (finance/actuarial)
See also
*
Risk measure
In financial mathematics, a risk measure is used to determine the amount of an asset or set of assets (traditionally currency) to be kept in reserve. The purpose of this reserve is to make the risks taken by financial institutions, such as bank ...
*
Coherent risk measure
In the fields of actuarial science and financial economics there are a number of ways that risk can be defined; to clarify the concept theoreticians have described a number of properties that a risk measure might or might not have. A coherent ris ...
*
Deviation risk measure In financial mathematics, a deviation risk measure is a function to quantify financial risk (and not necessarily downside risk) in a different method than a general risk measure. Deviation risk measures generalize the concept of standard deviation. ...
*
Spectral risk measure
*
Distortion risk measure
References
Risk analysis
Financial risk
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