Director of FRM Operations
In this video, David shows us 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.