Introducing conditional expected loss: A novel metric for risk investment analysis
Risk analysis is crucial in real asset investment projects. However, existing risk measures like VaR (value at risk) and CVaR (conditional value at risk) may not fully capture potential losses in such scenarios. Consequently, the current literature lacks an indicator that accurately estimates the expected value in the event of financial insufficiency. To fill this gap, this article introduces the conditional expected loss (CEL) metric, a novel approach that estimates the average loss expected in the event of financial deficits within an investment project and provides extensive numerical modeling and a detailed real-world example. This novel metric enhances risk analysis and decision making, particularly evaluating financial insufficiency within projects with limited managerial flexibility and a higher likelihood of financial deficits. By incorporating CEL alongside other risk and return metrics, practitioners gain a more comprehensive understanding of project risks, ultimately leading to better investment choices.
Authors
- Matheus Henrique Dal Molin Ribeiro (ORCID: https://orcid.org/0000-0001-7387-9077)
- Rômel da Rosa da Silva (ORCID: https://orcid.org/0000-0003-3206-9320)
- Géremi Gilson Dranka (ORCID: https://orcid.org/0000-0002-1521-4904)
- Luiz Fernando Puttow Southier (ORCID: https://orcid.org/0000-0003-2420-4094)
- José Donizetti de Lima (ORCID: https://orcid.org/0000-0001-5260-9035)
Institutions
- Universidade Tecnológica Federal do Paraná (BR)
- University of Minho (PT)
Publication Details
- Journal
- The Engineering Economist
- Published
- 2024-10-01
- DOI
- https://doi.org/10.1080/0013791x.2024.2431339
- Citations
- 2
- Primary Topic
- Risk and Portfolio Optimization
- Type
- article
- Field-Weighted Citation Impact
- 0.98