The Gluevar Risk Measure and Investor’s Attitudes to Risk–An Application to the Non-Ferrous Metals Market

Abstract

Investing in the economic world, characterized by a high level of uncertainty and volatility, entails a higher level of risk related to investment. One of the most commonly used risk measure is Value-at-Risk. However, despite the ease of calculation and interpretation, this measure suffers from a significant drawbackit is not subadditive. This property is the key issue in terms of portfolio diversification. Another risk measure, which meets this assumption, has been proposed -Conditional Value-at-Risk, defined as a conditional loss beyond Value-at-Risk. However, the choice of a risk measure is an individual decision of an investor and it is directly related to his attitudes to risk. In this paper the new risk measure is proposed -the GlueVaR risk measure, which can be defined as a linear combination of VaR and GlueVaR. It allows for calculating the level of investment loss depending on investment's attitudes to risk. Moreover, GlueVaR meets the subadditivity property, therefore it may be used in portfolio risk assessment. The application of the GlueVaR risk measure is presented for the non-ferrous metals market.

Risk management on the metals market

“…In a further part of this paper, an attempt to identify and classify the risk on the metals market was made. This market, in terms of risk analysis for precious and nonferrous metals, has been widely examined and described by Krężołek (2016) and Krężołek andTrzpiot (2017a, 2017b). As presented in the previous section, not only the probability of occurrence of a risky event and its consequences were taken into account, but also the source of risk, and as the source of risk the authors proposed the level of turnover.…”