Which one of the following best describes expected shortfall/conditional value-at-risk at the 95% level?
A) the expected loss on the portfolio in the worst 95% of cases
B) the expected loss in those cases where the loss exceeds the VaR at the 95% level
C) the maximum loss in those cases where the loss exceeds the VaR at the 95% level
D) the expected loss in those cases where the loss exceeds the VaR at the 5% level

Question

Quizplus · Accepted Answer

Expected shortfall (ES) is also known as conditional value-at-risk (CVaR). It is a risk measure that calculates the expected loss in cases where the loss exceeds the value-at-risk (VaR) at a given level of probability. In this case, the question specifies the 95% level, so the expected shortfall/CVaR represents the expected loss in cases where the loss exceeds the VaR at the 95% level. Choice A is incorrect because it describes the average loss in the worst 95% of cases, without necessarily considering losses that exceed the VaR. Choice C is incorrect because it describes the maximum loss in those cases, which may not be the most likely or expected outcome. Choice D is incorrect because it describes the expected loss only in cases where the loss exceeds the VaR at the 5% level, which is not the level specified in the question.

Which One of the Following Best Describes Expected Shortfall/conditional Value-At-Risk