medium · FRM Part 1 Valuation and Risk Models
How does Expected Shortfall (ES) respond to 'fat tails' (positive excess kurtosis) compared to Value-at-Risk (VaR) at high confidence levels?
- ES increases more significantly than VaR as tails become fatter.
- Both measures decrease when kurtosis increases.
- VaR is a better measure of fat tails because it identifies the exact failure point.
- ES is unaffected by kurtosis because it only looks at the mean.
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