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Expected Shortfall as a Tool for Financial Risk Management

Author

Listed:
  • Carlo Acerbi

    (Derivatives Desk, Abaxbank, Milano Italy)

  • Claudio Nordio

    (Derivatives Desk, Abaxbank, Milano Italy)

  • Carlo Sirtori

    (Derivatives Desk, Abaxbank, Milano Italy)

Abstract

We study the properties of Expected Shortfall from the point of view of financial risk management. This measure --- which emerges as a natural remedy in some cases where Value at Risk (VaR) is not able to distinguish portfolios which bear different levels of risk --- is indeed shown to have much better properties than VaR. We show in fact that unlike VaR this variable is in general subadditive and therefore it is a Coherent Measure of Risk in the sense of reference (artzner)

Suggested Citation

  • Carlo Acerbi & Claudio Nordio & Carlo Sirtori, 2001. "Expected Shortfall as a Tool for Financial Risk Management," Papers cond-mat/0102304, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0102304
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