Monetary and Economic Studies Vol.20, No.2 / April 2002

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

Yasuhiro Yamai, Toshinao Yoshiba

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.

Keywords: Expected shortfall; Value-at-risk; Tail risk; Stochastic dominance; Expected utility maximization


Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2002 Bank of Japan All Rights Reserved.

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