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CM2-04: Measures of investment risk - Practice Questions 4.5 (e)

Y

yuli2513

Very Active Member
The question is on page 26 and the answer's given on page 33.

I do not really understand the very last step/formula, why do we need to add the 14490 which is supposed to be the VaR value at 95% again? The 41770 is already the conditional TVaR needed, and the question is asking for the overall expected loss if the 95%'s exceeded, so I find adding up the loss at exactly 95% level not necessary.

Could anybody help? Thanks a lot in advance!
 
Hi
The TVaR figure is the expected shortfall below -14,490. So it gives the expected loss in addition to the 14,490 already determined by the VaR. Adding the VaR and conditional TVaR together gives the total expected loss.
Hope that helps.
Steve
 
Steve Hales said:
Hi
The TVaR figure is the expected shortfall below -14,490. So it gives the expected loss in addition to the 14,490 already determined by the VaR. Adding the VaR and conditional TVaR together gives the total expected loss.
Hope that helps.
Steve
Click to expand...
Hi Steve,

Thanks a lot for the answer.

There is one thing that I still do not fully get: the question is asking for the Tail Value at Risk at the 95%, conditional on the VaR being exceeded. In this case, shouldn't we only provide the TVaR itself? The question is not asking specifically for the total expected loss.
 
Yes, the conditional TVaR is all that's required to answer the question. That last line in the solution is there as a point of interest. Sorry for the confusion.
Steve
 
Steve Hales said:
Yes, the conditional TVaR is all that's required to answer the question. That last line in the solution is there as a point of interest. Sorry for the confusion.
Steve
Click to expand...
No problem at all and thanks again for answering. I was not very certain so good to have this confirmation from you! :)
 
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