The Basic Concept of Risk and Stock Price Risk
In today's society, almost everyone is familiar with the concept of risk and acknowledges that all aspects of life are faced with risk. In common parlance, risk is a danger that arises due to uncertainty about the occurrence of an event in the future, and the greater this uncertainty, the greater the risk. However, risk is more important for financial institutions and investment institutions. The main processes of many financial institutions such as insurance institutions and pension funds are based on risk control. What can provide the basis for the success of companies, banks, insurance, pension funds and investment companies when faced with risk is risk management. Without a specific strategy in the field of risk management, without a risk management committee and good coordination and continuous movement towards achieving global standards in this field, companies and financial institutions will not be successful. Risk, in its shortest definition, is the uncertainty of future results. The measurable potential loss of an investment is called risk. In Webster's dictionary, risk means the chance and probability of harm or loss, and the financial definition and amount of risk is the distribution of the probability of return on any investment.
A risk measure is coherent if it has the properties of aggregation, homogeneity, uniformity, and risk-free conditions.
Stock price risk
This type of market risk is related to the stock market. Stock price risk, which arises from stock price fluctuations, is examined in this market. Many companies and institutions, especially investment companies, spend part of their assets on buying stocks and as a result face price risk.
Risk is a key concept in financial markets. Therefore, it must be recognized and measured, and unnecessary risks must be planned and risks associated with opportunities must be managed. In the first step, every investor knows that in order to obtain greater returns, he must increase his level of risk tolerance.
Investment is one of the essential and fundamental issues in the process of economic growth and development of any country. Investors try to invest their financial resources in a place that has the highest return and the lowest risk as much as possible. Forecasting is a key factor in economic decisions and success in forecasting requires intervention in the formation of realities in a desirable way. Since forecasting outlines the future horizon, a framework for decision-making has emerged among the unknowns and various decision-making groups such as investors, creditors, management and other individuals rely on forecasts and expectations in their decisions. In most stock exchange markets of different countries, investors are looking for ways to identify high-yielding and low-risk stocks using various methods.
The Markowitz model was introduced by Harry Markowitz in 1957 and much research has been done on this subject. However, the "value at risk" model was introduced in the mid-nineties by Waterstone (1994) as a tool for risk management, and since then, numerous studies have been presented in this field. In 1999, Artzner, referring to the incoherent feature of the value at risk criterion, announced the inefficiency of this criterion for portfolio optimization and introduced a new criterion called "expected risk" instead, which is a coherent measure of risk. This article is of great importance because it introduces the weaknesses and characteristics of the value at risk criterion and model, and it confronted this model and criterion, which until then was considered one of the most widely used risk and portfolio management models and criteria, with some challenges. In particular, the characteristics of non-convexity and non-additivity of risk of this risk management model and criterion caused many ambiguities. Subsequently, the theory of conditional value at risk was developed by Rockefeller and Oryasov (2000) and a function for analyzing This was provided. These researchers published a paper that fully introduced the conditional value-at-risk criterion and presented how to minimize it using a linear programming model. This paper is the most prominent and fundamental paper on the contingent value-at-risk, which is known as a coherent risk measure.