Shortfall Risk

[vida_blue]

The CFA texts occassionally use shortfall risk interchangeably with Roy’s Safety First but in the answer keys I see shortfall risk defined as
expected return - 2 x standard deviation
Anybody know where I can find this definition in the texts? Ran some searches but had no luck.

 

[MrSmart]

Roy’s SF is an ordinal measure of portfolio utility.
Shortfall is a confidence interval.

 

[StallionDis]

Don’t sleep on calmer

 

[tickersu]

MrSmart wrote:
Roy’s SF is an ordinal measure of portfolio utility.
Shortfall is a confidence interval.

I haven’t looked at the LIII curriculum, but I’m not sure VaR is used like a confidence interval (isn’t it only looking at downside?).

 

[Mosstastic]

tickersu wrote:
I haven’t looked at the LIII curriculum, but I’m not sure VaR is used like a confidence interval (isn’t it only looking at downside?).

I believe you’re right. VaR is typically concerned with just the downside.

 

[AmruthSundarkumar]

Expected Shortfall is the loss that would be made if the VaR estimate is breached. If the 1 day VaR at 99% confidence is $1m then expected shortfall is the loss that could be made in that remaining 1%. Both look at the downside only.

 

[MrSmart]

tickersu wrote:

MrSmart wrote:
Roy’s SF is an ordinal measure of portfolio utility.
Shortfall is a confidence interval.

I haven’t looked at the LIII curriculum, but I’m not sure VaR is used like a confidence interval (isn’t it only looking at downside?).

It is a confidence interval, in the sense that there is a range with probability distributions. If you are looking at 5% VAR, you look the value at the 5% as the chance that the return would be less than that, or loss more than that.