Dr. Jayanthi Sankaran
Well-Known Member
Hi David,
In the following as referenced above, I don't know what I am doing wrong. Please help!
What is the 95% ES of a two-bond portfolio? (PD = 2% each and independent)
The expected shortfall (ES) is given by: (0 defaults * 1.04% + 1 default * 3.92% + 2 defaults * .04%)/5% = 0.80 i.e. the conditional average of the 5.0% tail is 0.80. It is higher than the single bond scenario because more of the 5% tail now includes a single default (3.92% versus 2.0%), and a tiny slice includes two defaults (0.04%).
According to my calculations I get: (0 defaults * 1.9208% + 1 default * 3.92% + 2 defaults * 0.04%)/5% = 0.80
In the following as referenced above, I don't know what I am doing wrong. Please help!
What is the 95% ES of a two-bond portfolio? (PD = 2% each and independent)
The expected shortfall (ES) is given by: (0 defaults * 1.04% + 1 default * 3.92% + 2 defaults * .04%)/5% = 0.80 i.e. the conditional average of the 5.0% tail is 0.80. It is higher than the single bond scenario because more of the 5% tail now includes a single default (3.92% versus 2.0%), and a tiny slice includes two defaults (0.04%).
According to my calculations I get: (0 defaults * 1.9208% + 1 default * 3.92% + 2 defaults * 0.04%)/5% = 0.80
Last edited:
