Enterprise Risk Management (ERM) Practice Questions - Enterprise Risk Management (ERM) - Actuaries Institute Fellowship Program Exam

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An actuary models portfolio losses using Tail Value at Risk (TVaR), also known as Expected Shortfall (ES), at confidence level α = 99%. By definition, TVaR_0.99(L) represents:

The conditional expected loss given that the loss exceeds the 99th percentile Value at Risk: E[L | L > VaR_0.99(L)] The maximum possible loss that can occur with exactly 1% probability in a one-year time horizon The median loss across the entire probability distribution of asset returns The standard deviation of losses multiplied by the 99th percentile standard normal quantile

Correct Answer:

The conditional expected loss given that the loss exceeds the 99th percentile Value at Risk: E[L | L > VaR_0.99(L)]

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