For situations in which probability distributions exhibit fat tail losses, expected shortfall (ES) may look relatively small, but value at risk (VaR) may be very large.

Question

Quizplus · Accepted Answer

Expected shortfall (ES) measures the average loss in the worst-case scenarios beyond the VaR threshold, so in fat-tailed distributions, ES is typically larger than VaR, not smaller.

For Situations in Which Probability Distributions Exhibit Fat Tail Losses