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Mastering R for Quantitative Finance by Edina Berlinger, Ferenc Illés, Milán Badics, Ádám Banai, Gergely Daróczi, Barbara Dömötör, Gergely Gabler, Dániel Havran, Péter Juhász, István Margitai, Balázs Márkus, Péter Medvegyev, Julia Molnár, Balázs Árpád Szűcs, Ágnes Tuza, Tamás Vadász, Kata Váradi, Ágnes Vidovics-Dancs

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Risk measures

Financial risk is a tangible and quantifiable concept, a value that you can lose on a certain financial investment. Note that here, we strictly differentiate between uncertainty and risk, where the latter is measurable with mathematical-statistical methods with exact probabilities of the different outcomes. However, there are various kinds of measures for financial risks. The most common risk measure is the standard deviation of the returns of a certain financial instrument. Although it is very widespread and easy to use, it has some major disadvantages. One of the most important problems of the standard deviation as a risk measurement is that it treats upside potential the same way as downside risk. In other words, it also punishes ...

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