Expected Shortfall – An Alternative Risk Measure to Value-at-Risk

Value-at-Risk is a risk measure that is simplistic to model and is widely used by financial institutions. However, it does not provide indication on how much you may loss when the return falls at the tail end of the distribution. As an alternative, Expected Shortfall models the potential loss when the return reaches the tail end of the distribution, but it is less straight forward to model. This project will develop Python scripts to model both risk measures under similar criteria demanded by regulators – Basel and FCA – using historical simulation on returns data of S&P 500 index, large-cap technology stocks and banking stocks. The project will focus on the worst 25 returns and evaluate if Expected Shortfall is better than Value-at-Risk as a risk measure against loss