Risk, Ruin and Investment Analysis
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.