Comparative Analyses of Expected Shortfall and Value-at-Risk: Their Estimation Error, Decomposition, and Optimization
AbstractWe compare expected shortfall with value-at-risk (VaR) in three aspects: estimation errors, decomposition into risk factors, and optimization. We describe the advantages and the disadvantages of expected shortfall over VaR. We show that expected shortfall is easily decomposed and optimized while VaR is not. We also show that expected shortfall needs a larger size of sample than VaR for the same level of accuracy.
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Bibliographic InfoArticle provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
Volume (Year): 20 (2002)
Issue (Month): 1 (January)
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- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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- Fermanian, Jean-David & Scaillet, Olivier, 2005.
"Sensitivity analysis of VaR and Expected Shortfall for portfolios under netting agreements,"
Journal of Banking & Finance,
Elsevier, vol. 29(4), pages 927-958, April.
- Jean-David Fermanian & Olivier Scaillet, 2003. "Sensitivity Analysis of Var and Expected Shortfall for Portfolios under Netting Agreements," Working Papers 2003-33, Centre de Recherche en Economie et Statistique.
- Daníelsson, Jón & Jorgensen, Bjørn N. & Samorodnitsky, Gennady & Sarma, Mandira & de Vries, Casper G., 2013. "Fat tails, VaR and subadditivity," Journal of Econometrics, Elsevier, vol. 172(2), pages 283-291.
- Giannopoulos, Kostas & Tunaru, Radu, 2005. "Coherent risk measures under filtered historical simulation," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 979-996, April.
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