"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

"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.

Quizplus · Accepted Answer

Subadditivity requires that the risk of the combination of two portfolios be no greater than the sum of the risks of the two portfolios. This means that the risk measure is consistent with the idea that diversification can lower overall risk, as the risk of the combined portfolio should be less than the sum of the risks of the individual portfolios.

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