VaR fails the following requirement of a "coherent" risk measure:
A) Linear homogeneity.
B) Monotonicity.
C) Subadditivity.
D) Translation invariance.

Question

VaR fails the following requirement of a "coherent" risk measure: 
A) Linear homogeneity.
B) Monotonicity.
C) Subadditivity.
D) Translation invariance.

Quizplus · Accepted Answer

VaR fails the subadditivity requirement of a "coherent" risk measure, which means the risk measure is not additive. This means that the risk measure of a portfolio consisting of individual assets will not equal the sum of the risk measures of the assets. This failure makes VaR deficient as a measure of risk.

VaR Fails the Following Requirement of a "Coherent" Risk Measure