Expected shortfall (ES, FRM T5-02)

In this video, I'm going to show you exactly how we calculate expected shortfall under basic historical simulation. Expected shortfall is both desirable and timely. It's desirable because it is coherent, satisfies all four conditions of coherence, including subadditivity, whereas var does not. Second, it's timely because you may know that in Basel IV, specifically fundamental review the trading book VaR is being replaced by expected shortfall. So previously, this was more perhaps of academic interest and it is now popular and practical.

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[o]

Thank you. Easy to understand when you showed it with the example.

[robinlam]

Hello, thank you for putting this together!

May I ask how we can calculate the expected shortfall @ 99% confidence interval if we only have, like, 80 data points? This is a case when we are doing a rolling 3-year window in 10 years (120 months), since we only end up with 85 total periods.

At 99% in the 85 total periods, the worst case would have to be the very worst case (rank 1), how can we calculate the expected shortfall in this case when we are just averaging one value?

Thank you!

[mteichmann]

@Bionic Turtle Great explanatory Video! Really appreciate the fact that u go through it step by step! Is there a way to calculate an aggregated ES? i.e. if i have a risk with a normal distribution and a risk with a triangular distribution.. would i have to simulate often enough to get a (aggregated) normal distribution and then do the math on the new normal distribution as u did in the video? Also.. how would i have to translate my random numbers of the simulation into my triangular distribution? i haven't found a satisfying way for it yet :/

[SS-mbpl]

thank u, I hope I can have a professor like u.