When assessing tail risk by looking at the 5% worst-case scenario,the most realistic view of downside exposure would be ________.
A)expected shortfall
B)value at risk
C)conditional tail expectation
D)A and B
E)A and C

Question

Quizplus · Accepted Answer

Expected shortfall (ES) and conditional tail expectation (CTE) are both measures of tail risk that provide a more realistic view of downside exposure than value at risk (VaR). While VaR only considers the potential loss at a certain level of probability (e.g. 5% worst-case scenario), ES and CTE take into account the severity of the loss beyond that level. ES represents the expected loss given that the loss exceeds the VaR, while CTE represents the average of all losses beyond the VaR. Therefore, the best choice(s) for a more realistic view of downside exposure when assessing tail risk by looking at the 5% worst-case scenario would be A and C (ES and CTE).

When Assessing Tail Risk by Looking at the 5% Worst-Case