Consider two R&D projects A and B such that, in one year, each generates a gain of £1,000 with probability 90% and a loss of £5,000 with probability 10%. The loss distributions of the two projects are...

Consider two R&D projects A and B such that, in one year, each generates a gain of £1,000 with probability 90% and a loss of £5,000 with probability 10%. The loss distributions of the two projects are independent. [25%] (a) Find the Value-at-Risk as well as the Expected Shortfall of each project in one year with confidence level a ? [0.8, 1). (b) Suppose that the two projects are now merged into one portfolio. Find the Value-at-Risk as well as the Expected Shortfall of the portfolio in one year with confidence level a ? [0.8, 1). (c) Given your answers in part (a) and (b), discuss the (dis-)advantage of Value-at-Risk over Expected Shortfall as a risk measure.