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(Pensions & Investments) Finding serenity while managing risk

BY ROBERT BAGUENAULT DE VIEVILLE, RAPHAEL GELRUBIN AND EDOUARD LINDET

Classic risk measures (such as volatility) do not consider the path followed by returns and fail to communicate the risk of potential large drawdowns. Using path-dependent measures adds valuable information to any investment decision. We propose a new measure of portfolio risk, the serenity ratio, which estimates both the average and extreme risks carried by an investment. This indicator can be used in a modified version of modern portfolio theory and might assist investors in making prudent investment decisions.
Annualized standard deviation or…

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