Risk measurement proposal based on utility

Authors

  • Rodrigo Leone Universidade Potiguar; Departamento de Administração
  • Roberto Quirino do Nascimento Universidade Federal da Paraíba; Centro de Ciências Exatas e da Natureza; Departamento de Estatística
  • George Guerra Leone Universidade Federal da Paraíba; Departamento de Contabilidade
  • Paulo Oliveira Universidade Federal do Rio de Janeiro; COPPE; Programas de Pós-graduação de Engenharia

DOI:

https://doi.org/10.1590/S1519-70772007000200003

Keywords:

Measurement of Risk, Utility Function, Utility Deviation, Stock Market

Abstract

The measurement of risk presented in Markowitz work was based on the variance of returns. In spite of penalizing deviation greater than the unity, this methodology does not differentiate positive from negative deviation. This study proposes a measurement of risk in which a utility function is incorporated to describe the characteristics of a rational investor. The disappointment of the investor with the loss is greater than the satisfaction with the gain. This new component, in addition to supplying other interpretations for volatility, seems to be a more effective alert instrument than the usual methodology.

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Published

2007-08-01

Issue

Vol. 18 No. 44 (2007)

Section

Articles

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How to Cite

Leone, R., Nascimento, R. Q. do, Leone, G. G., & Oliveira, P. (2007). Risk measurement proposal based on utility . Revista Contabilidade & Finanças, 18(44), 23-32. https://doi.org/10.1590/S1519-70772007000200003