The use of expected shortfall (ES) is most appropriate when

Question

Quizplus · Accepted Answer

Expected shortfall (ES), also known as conditional VaR, is a risk measure that considers the possibility of extreme losses beyond the value at risk (VaR). ES is particularly useful when dealing with skewed or fat-tailed probability distributions, where the likelihood of extreme events is higher than in a normal distribution. Therefore, choice E is the best answer. The other options are incorrect because a small sample size does not necessarily require the use of ES, VaR does not necessarily indicate no possibility of losses, a continuous probability distribution is not required for ES, and ES can be used with either a skewed or symmetric distribution.

The Use of Expected Shortfall (ES) Is Most Appropriate When