You have computed the 1%, 1 month VaR for your investment, assuming normally distributed returns using...

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You have computed the 1%, 1 month VaR for your investment, assuming normally distributed returns using a historical estimate of the mean and volatility. Based on your computations, the potential loss is 1mln euro. i) do you expect an estimate of the 1%, 1 month Expected Shortfall to be higher or lower? Why? ii) if you instead used the historically observed distribution of returns to compute the VaR, would you expect your estimated losses to be higher or lower? Why? You have computed the 1%, 1 month VaR for your investment, assuming normally distributed returns using a historical estimate of the mean and volatility. Based on your computations, the potential loss is 1mln euro. i) do you expect an estimate of the 1%, 1 month Expected Shortfall to be higher or lower? Why? ii) if you instead used the historically observed distribution of returns to compute the VaR, would you expect your estimated losses to be higher or lower? Why?

Answer rating: 100% (QA)

i The estimate of the 1 1 month Expected Shortfall ES is typically higher than the VaR because it ta... View the full answer