Why is traditional, simple VaR measurement not coherent
Why is traditional, simple VaR measurement not coherent?
Expert
The traditional, simple VaR measure is not coherent because it does not satisfy the sub-additivity condition. Sub-additivity is an evident requirement for a risk measure; or else there would be no risk benefit to adding uncorrelated new trades in a book. When you have two portfolios X and Y so then this benefit can be explained as
ρ(X) + ρ(Y) − ρ(X + Y).
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