medium · Quantitative Finance prob-stats
An analyst is comparing Value at Risk (VaR) and Expected Shortfall (ES).
Which of the following statements correctly identifies a primary mathematical advantage of ES over VaR?
- ES is subadditive, meaning the risk of a combined portfolio cannot exceed the sum of individual risks, which is a requirement for a coherent risk measure.
- ES is actually computationally simpler to calculate in practice because it does not require any integration over the tail of the loss distribution.
- ES provides a single fixed loss threshold value that the portfolio's realized loss will supposedly never exceed with complete, absolute certainty.
- ES is considerably less sensitive than VaR to the specific distributional assumption chosen, such as wrongly assuming that asset returns are normally distributed.
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