CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What are coherent risk measures?

Coherent risk measure

Within financial economics, there are many ways to describe risk, and each method of measuring risk will be able to cover certain factors. A coherent risk measure is a function that considers translational invariance, monotonicity, homogeneity and sub-additivity.

Where have you heard about coherent risk measures?

Most experienced investors or traders will have encountered, if not used, a coherent risk measure at some point. These mathematics-based measures can be very useful for determining the amount of risk an investment could incur.

What you need to know about coherent risk measures.

A risk measure qualifies as coherent if it meets certain basic mathematical properties, and there are a number of coherent risk measures, all ranging in popularity. A favoured coherent measure is expected shortfall, which is used to calculated the credit or market risk of a portfolio. However, it is generally accepted that value at risk is not a coherent measure, due to its exclusion of sub-additivity – leading to potential under-diversification. Other coherent risk measures include entropic value at risk, the Wang risk measure and the superhedging price.

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading