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In the context of risk measurement, a risk metric is the concept quantified by a risk measure. When choosing a risk metric, an agent is picking an aspect of perceived risk to investigate, such as volatility or probability of default.[1]

Risk measure and risk metric

In a general sense, a measure is a procedure for quantifying something. A metric is that which is being quantified.[2] In other words, the method or formula to calculate a risk metric is called a risk measure.

For example, in finance, the volatility of a stock might be calculated in any one of the three following ways:

These are three distinct risk measures. Each could be used to measure the single risk metric volatility.

Examples

See also

References

  1. ^ Holton, Glyn A. (2004). "Defining risk" (pdf). Financial Analysts Journal. 60 (6): 19–25. doi:10.2469/faj.v60.n6.2669. Retrieved March 11, 2012.
  2. ^ Holton, Glyn A. (2002). "Risk Measure and Risk Metric". Retrieved March 11, 2012.


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