what’s the difference?
I think one key difference is shortfall risk deals with a target “return” while VAR deals with a “loss” level
shortfall risk doesn’t assume normal distribution (not sure why not but check the first EOC in that section). Value at risk does assume normal distriubtion.
Shortfall risk is a probability that you fall below a certain #. It is measured in terms of the number of std. deviations … and expands into Sharpe Ratio/Roy’s Safety First and so on.
VaR is a number assignment. It is a minimum loss amount that may be suffered by the portfolio at a particular probability (significance level).
And neither tell you the magnitude of the potential loss which is a weakness for both
I saw “shotfall level” somewhere, but it’s like Ri-2*(standard deviation). Two questions:
- Does shortfall risk measure Normality? 2) Is shortfall risk only an annualized measure?