qingshu

 

The correct answer is A

Expected shortfall is essentially an average or expected value of all losses greater than the VAR. An expression for this is: E[LP | LP > VAR].

qingshu

 

AIM 8: Explain, including equations, the individual contribution to unexpected losses.

Assume a portfolio consists of two loans of $1,000 with a correlation between loans of 0. Also, assume the unexpected loss of both loans is $2 and portfolio unexpected loss is $2.828. Find RC1, the risk contribution of loan 1 to unexpected losses.

A) $0.71.

B) $1.41.

C) $2.

D) $2.83.

qingshu

 

The correct answer is B

The sum of each individual risk contribution will equal the unexpected loss of the portfolio.

The risk contribution to loan 1 = UL1 ×(UL1 + ρ×UL2) / ULP

RC1 = 2 × (2 + 0(2))/2.828 = 1.4144.