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A Debt-Aware Software Product Lines Engineering Using Portfolio Theory
Published in Ivan Mistrik, Matthias Galster, Bruce R. Maxim, Software Engineering for Variability Intensive Systems, 2019
E(r) is the expected return of an investment. Rf is the risk-free rate, which is the minimum acceptable return by investing in a risk-free investment. The Risk Value is the portfolio standard deviation. Usually a Sharpe ratio greater than 1 is considered a profitable investment, while a Sharpe ratio that is lower than one indicates that the rate of return is lower than the risk taken. In this chapter, the Sharpe ratio of each feature portfolio will be calculated for the evaluation of optimality.
Ensemble Classifier for Stock Trading Recommendation
Published in Applied Artificial Intelligence, 2022
In the second step, the predicted trend results are employed in a trading recommendation system – that is to buy, to sell, or to do nothing if the predicted trend is positive, negative, or very small, respectively. The investment returns from trading simulation with the testing data are calculated. Performance of the proposed model is evaluated using trading return and Sharpe ratio. Sharpe ratio is a measure of risk-adjusted return, describing how much excess return received for the volatility (or risk) of holding a riskier asset (Sharpe 1994). The returns and Sharpe ratios are to be compared with the trading using prediction results from individual classifier as well as with two other cases – one is the buy and hold (B&H) and the other is if we know the future (KF).
Avoiding momentum crashes using stochastic mean-CVaR optimization with time-varying risk aversion
Published in The Engineering Economist, 2023
All the performance measures mentioned above focus on either risk or return but not both. They cannot tell investors whether the risk is worth the reward. The Sharpe ratio (Sharpe, 1966) is one of the most widely-used risk-adjusted metrics which takes account of both investment’s profit and the degree of risk that is taken to achieve it. Annualized Sharpe ratio can be calculated as
Research on Financial Field Integrating Artificial Intelligence: Application Basis, Case Analysis, and SVR Model-Based Overnight
Published in Applied Artificial Intelligence, 2023
Risk measurement is a fundamental aspect of risk management, and various quantitative methods are used to quantify and assess different types of risks. Some commonly used quantitative measures for risk assessment include: Value at Risk (VaR): VaR is a statistical measure that estimates the maximum potential loss within a specific confidence level over a given time horizon. It quantifies the potential downside risk by providing a numerical estimate of the amount that an investment or portfolio could lose under adverse market conditions.Expected Shortfall (ES): Also known as Conditional Value at Risk (CVaR), ES represents the average expected loss beyond the VaR level. It provides a measure of the severity of losses in the tail of the distribution and offers additional information beyond VaR.Standard Deviation: Standard deviation is a measure of the dispersion or volatility of returns. It quantifies the extent to which individual observations within a dataset deviate from the mean. Higher standard deviation indicates higher volatility and, consequently, higher risk.Beta: Beta is a measure of systematic risk or market risk associated with an investment relative to the overall market. It represents the sensitivity of an asset’s returns to changes in the market returns. A beta greater than 1 indicates higher volatility compared to the market, while a beta less than 1 indicates lower volatility.Credit Ratings: Credit rating agencies assign numerical ratings to assess the creditworthiness and default risk of debt issuers. These ratings range from high-quality (e.g., AAA) to low-quality (e.g., D) and provide an indication of the level of credit risk associated with an investment.Sharpe Ratio: The Sharpe ratio measures the risk-adjusted return of an investment by considering the excess return earned relative to the risk-free rate per unit of total risk. A higher Sharpe ratio indicates a more favorable risk-return trade-off.