Hi,
Not leveraged or shorting, but my ES hovers above 100% which indicates in the worst 1% of scenario I will lose more than what I invested. Doesn’t sound right/make sense and I saw several Q&A threads on similar observation. Any idea what could be the reason?
Regards,
WS
Hi WS,
Mathematically, it is possible due to the multiplier used => https://www.risk.net/risk-magazine/technical-paper/1506669/var-versus-expected-shortfall
However, assuming that you are not leveraging nor shorting, then you are right, it would be weird to have Expected Shortfall more than 100% practically.
I propose that either way, I should just set a bound to it (i.e. limit it to 100%) since several people have independently feel weird about it. What do you think?
Cheers,
Evan
Hi Evan,
I reckon that it will be more meaningful to first know the reason/what is causing the abnormality, before setting a quick fix of 100% max. bound.
Till then, I think we should keep it as is, since I personally don’t think this requires immediate fix (more like me wanting to find out why is this so), plus I am unsure if any tweak will affect the risk measure of other users’ portfolios.
Thanks,
WS
Hi WS,
It will only affect those with >100% expected shortfall since the solution would simply be. If ES > 100, set ES = 100 or something like that.
This sounds good to me too 
Cheers,
Evan