easy · FRM Part 1 Valuation and Risk Models
The 'Positive Homogeneity' axiom for Expected Shortfall implies that:
- Portfolio risk is never negative, since losses are always measured as positive capital charges.
- Adding a single extra dollar to any position has a fixed, constant marginal effect on total risk.
- If you double the size of every position in the portfolio, the Expected Shortfall also doubles.
- Larger, more diversified portfolios are always safer than small, concentrated single-asset portfolios.
Sign up free to see the explanation and track your rank →
More FRM Part 1 Valuation and Risk Models practice
- What is the Expected Loss (EL)?
- If a loan has a Probability of Default (PD) of 2.0%, an Exposure at Default (EAD) of $1,00
- If market yields rise by 150 basis points (0.015), what is the estimated new price of the
- A stock trades at S_0 = $100. A European call struck at K = $100 expires in 1 year. If the
- If the manager scales the VaR to a 10-day horizon using the square-root-of-time rule, what
- An investor holds a $10 million portfolio of two assets. Asset A has a weight of 60% and a
- Using a simple 'credit-triangle' approximation, what is the fair annual CDS spread in basi
- If the exposure at default (EAD) is $1 million, what is the unexpected loss (UL) assuming