Coherent Measures of Risk

David Heath
Hoch Professor of Mathematical Sciences
Carnegie Mellon University

The management and regulation of risk are two of the most important activities in finance. Currently the principal tool used to measure risk is VaR. VaR has some very undesirable properties: its use can discourage diversification, and it does not allow risk limits to be allocated among activities in a firm. This talk discusses desirable properties for measures of risk and characterizes those risk measures possessing these properties.