Studying risk models for portfolio management

Having a good risk measure is of fundamental importance in finance, as it is one of the main tools for evaluating financial assets. This is because it allows you to monitor securities and provides a criterion for the construction of portfolios. One measure, more than any other, that has been widely used over the years is variance.

Using variance as a risk measure

The advantage of a diversified portfolio in terms of risk and the expected value allows us to find the right allocation for the securities. Our aim is to obtain the highest expected value at the same risk or to minimize the risk of obtaining the same expected value. To achieve this, it is necessary to trace the concept of risk back to a measurable quantity, which is generally referred to as the variance. Therefore, by maximizing the expected value of the portfolio returns for each level of variance, it is possible to reconstruct a curve called the efficient frontier, which...