"Subadditivity" is the requirement of a coherent risk measure that
A)The risk of a subset of portfolio holdings be strictly less than the risk of the entire portfolio.
B)The risk of the combination of two portfolios be at most the sum of the risks of the two portfolios.
C)The risk of the combination of two portfolios be at least the sum of the risks of the two portfolios
D)The sum of the risks of each constituent of the portfolio equals the total risk of the portfolio.

Question

Quizplus · Accepted Answer

Subadditivity requires that the risk of a combined portfolio is less than or equal to the sum of the risks of the individual portfolios. In other words, the risk of the combination should not be greater than the sum of the risks of the individual portfolios. This is why choice B is the correct answer.

"Subadditivity" Is the Requirement of a Coherent Risk Measure That