50 Frequently Asked Questions In Quantitative Finance
damaging tail events. Another measure that is coherent
isExpected Shortfall. This is calculated as the average
of all the P&Ls making up the tail percentile of interest.
Suppose we are working with the 5% percentile, rather
than quoting this number (this would be traditional
VaR) instead calculate the average of all the P&Ls in
this 5% tail.
Attribution Having calculated a coherent measure of
risk, one often wants to attribute this to smaller units.
For example, a desk has calculated its risk and wants to
see how much each trader is responsible for. Similarly,
one may want to break down the risk into contributions
from each of the greeks in a derivatives portfolio. How
much risk is associated with direction of the market,
and how much is associated with volatility exposure,
for example.
References and Further Reading
Acerbi, C & Tasche, D On the coherence of expected shortfall.
www-m1.mathematik.tu-muenchen.de/m4/Papers/Tasche/shortfall.pdf
Artzner, P, Delbaen, F, Eber, J-M & Heath, D 1997 Thinking
coherently.Risk magazine 10 (11) 68–72
