Suppose that, five stress scenarios are considered. They lead to losses ($000s) of 235, 300, 450,...

  

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Suppose that, five stress scenarios are considered. They lead to losses ($000s) of 235, 300, 450, 750, and 850. The probabilities assigned to the scenarios are 0.5%, 0.2%, 0.2%, 0.05%, and 0.05%, respectively. The total probability of the stress scenarios is, therefore 1%. This means that the probability assigned to the scenarios generated by historical simulation is 99%. Assuming that equal weighting is used. Compute the 1-day 99% expected shortfall. (3 marks) Suppose that, five stress scenarios are considered. They lead to losses ($000s) of 235, 300, 450, 750, and 850. The probabilities assigned to the scenarios are 0.5%, 0.2%, 0.2%, 0.05%, and 0.05%, respectively. The total probability of the stress scenarios is, therefore 1%. This means that the probability assigned to the scenarios generated by historical simulation is 99%. Assuming that equal weighting is used. Compute the 1-day 99% expected shortfall. (3 marks)

Answer rating: 100% (QA)

SOLUTION To compute the 1day 99 expected shortfall ES using equal weighting we need to follow these ... View the full answer