Is the expected shortfall of a risk free asset always zero? If not, why? How would one find it?

Login

+1 vote

Best answer

It is zero if you set your benchmark less than or equal to the risk free return (*r*) but if you were to set your benchmark return (L) to be above* r *then you would have a certain shortfall.

Expected shortfall relies on the randomness of returns but a risk free asset has a guaranteed return. The return is like a piece-wise function which will be some fixed value *r *with probability = 1 and takes on any other value with probability = 0. It's probably better to think of it as a certain shortfall, rather than an expected shortfall in this case.

- All categories
- BUS 1003H - Introduction to Financial Risk (52)
- BUS 2016H - Financial Mathematics (55)
- BUS 3018F - Models (74)
- BUS 3024S - Contingencies (61)
- BUS 4028F - Financial Economics (33)
- BUS 4027W - Actuarial Risk Management (54)
- BUS 4029H - Research Project (5)
- Mphil (1)
- Calculus and Pure Mathematics (4)
- Statistics (16)

...