Comparative Analyses of Expected Shortfall and Value-at-Risk (2): Expected Utility Maximization and Tail Risk

We compare expected shortfall and value-at-risk (VaR) in terms of consistency with expected utility maximization and elimination of tail risk. We use the concept of stochastic dominance in studying these two aspects of risk measures. We conclude that expected shortfall is more applicable than VaR in those two aspects. Expected shortfall is consistent with expected utility maximization and is free of tail risk, under more lenient conditions than VaR.

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Year of publication:	2002
Authors:	Yamai, Yasuhiro ; Yoshiba, Toshinao
Published in:	Monetary and Economic Studies. - Institute for Monetary and Economic Studies. - Vol. 20.2002, 2, p. 95-115
Publisher:	Institute for Monetary and Economic Studies

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Extent:	application/pdf
Type of publication:	Article
Language:	English
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty
Source:	RePEc - Research Papers in Economics

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