medium · FRM Part 1 Foundations of Risk Management
If a firm uses 'Expected Shortfall' (ES) instead of 'Value at Risk' (VaR) for its economic capital denominator, and the loss distribution has 'fat tails', what is the likely impact on the calculated RAROC?
- RAROC will stay the same as ES and VaR are both 99% measures.
- RAROC will increase.
- RAROC will decrease.
- The hurdle rate will increase to compensate.
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