Using Value At Risk To Assess Investment Risk Tolerance

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Authors

  • John L. Harris

Published 2004, "Using Value At Risk To Assess Investment Risk Tolerance", Journal of Personal Finance, 2004- Volume 3

Abstract

  • The assessment of risk tolerance is one of the key steps in establishing a client’s financial plan and related investment portfolio. Many approaches to risk tolerance, however, employ only qualitative descriptions of asset allocation such as aggressive, balanced or conservative. Clients can be better served by providing them with a quantitative magnitude-of-loss metric that applies to their specific investment portfolio. This paper describes how Value at Risk (VaR) can be employed to better evaluate, establish, and monitor the level of risk clients are willing to incur.