Explanation:
Expected Shortfall (ES) is a coherent risk measure, which means it satisfies all four axioms of coherence: monotonicity, subadditivity, homogeneity, and translational invariance. Unlike Value at Risk (VaR), which fails the subadditivity property under certain conditions, Expected Shortfall always satisfies the subadditivity principle. Therefore, statement D is incorrect.
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Q.32 Which of the following statements about expected shortfall (ES) is most likely incorrect?
A
The expected shortfall provides a coherent risk measure across different positions and takes account of correlations.
B
The expected shortfall tells us what to expect in bad states: It gives an idea of how bad the portfolio payoff can be if the portfolio has a bad outcome.
C
The expected shortfall is better at capturing tail risk than the VaR.
D
Like the VAR, the expected shortfall does not always satisfy the subadditivity principle.
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