Journal of Risk

What is the best risk measure in practice? A comparison of standard measures

Susanne Emmer, Marie Kratz and Dirk Tasche

  • There are a number of feasible approaches to the backtesting of ES.
  • Expectiles are no good alternative to ES because they might fail to detect risk concentrations.
  • The main deficiency of VaR as a risk measure is that it does not cover tail risk risks 'beyond VaR'.


Expected shortfall (ES) has been widely accepted as a risk measure that is conceptually superior to value-at-risk (VaR). At the same time, however, it has been criticized for issues relating to backtesting. In particular, ES has been found not to be elicitable, which means that backtesting for ES is less straightforward than, for example, backtesting for VaR. Expectiles have been suggested as potentially better alternatives to both ES and VaR. In this paper, we revisit the commonly accepted desirable properties of risk measures such as coherence, comonotonic additivity, robustness and elicitability. We check VaR, ES and expectiles with regard to whether or not they enjoy these properties, with particular emphasis on expectiles. We also consider their impact on capital allocation, an important issue in risk management. We find that, despite the caveats that apply to the estimation and backtesting of ES, it can be considered a good risk measure. As a consequence, there is no sufficient evidence to justify an all-inclusive replacement of ES by expectiles in applications. For backtesting ES, we propose an empirical approach that consists of replacing ES by a set of four quantiles, which should allow us to make use of backtesting methods for VaR.

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