Theoretical Mathematics & Applications
Financial Risk Assessment with Cauchy Distribution under a Simple Transformation of dividing with a Constant
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Financial risk is the risk that value of the investment will change due to the moves in the market risk factors. Typical market risk factors are the stock price returns which are commonly assumed to be log normally distributed. In this paper we investigate using the Cauchy distribution under a simple transformation of dividing with a constant in financial risk assessment. We characterize this distribution by the first four moments: mean, variance, skewness and kurtosis, since these moments are use in many risk management applications. We use the simulated data to show the performance of model.
ISSN: 1792-9687 (Print)