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Risk, Ruin and Investment Analysis

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  • Machol, Robert E.
  • Lerner, Eugene M.

Abstract

In this article, we shall discuss several of the alternative definitions of risk that have been proposed from time to time. We shall show that one definition — risk is the probability of loss — leads to a formulation of the investment decision problem as a chance constrained problem. Three different strategies are then proposed by which an investor can reduce risk. It is our belief that professional investors utilize all three strategies and that risk, in many such cases, is not a substantial constraint on investor behavior.

Suggested Citation

  • Machol, Robert E. & Lerner, Eugene M., 1969. "Risk, Ruin and Investment Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 4(4), pages 473-492, December.
    • Handle: RePEc:cup:jfinqa:v:4:y:1969:i:04:p:473-492_01
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    Cited by:

    1. Vojtěch Menzl, 2019. "Estimating Present Value of Expected Expenditures in the Context of the Valuation of Negative Risk Cash Flows Using the RADR and Certainty Equivalent Methods [Odhad současné hodnoty očekávaných výd," Oceňování, Prague University of Economics and Business, vol. 12(2), pages 29-48.
    2. Philip L. Cooley, 1979. "On The Nature Of Risk: A Comment," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 2(1), pages 81-85, March.

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