Consider the following discrete probability distribution of payoffs for two securities, A and B, held in the trading portfolio of a bank:

Probability Payoff A

55.00% $120m

44.00% $95m

1.00% -$1,100m

Probability Payoff B

55.00% $120m

44.00% $100m

0.30% -$1,100m

0.70% -$1,414m

a) What is the expected return of security A and the expected return of security B?

b) According to VaR (Value at Risk), which security is adding more market risk to the banks trading portfolio? Make sure your calculations are clear and explain your answers.

c)According to ES (Expected Shortfall), which security is adding more market risk to the banks trading portfolio? Make sure your calculations are clear and explain your answers.

d)Compare your answers in items b) and c) and discuss the advantages and pitfalls of each of the two risk measures.