So I am reading lecture notes here:
The example is this:
We have two independent portfolios of bonds. They both have a probability of 0.02 of a loss of £10 million and a probability of 0.98 of a loss of £1 million over a 1-year time window.
To calculate the individual ES of 97.5% I know that it would be
that makes sense. However it is the figure of £11.4 for the combined portfolio. I don't understand how they came to that figure at all? I realise that the example is meant to be lower than the combined individual (8.2+8.2=16.4) but if you could explain the formula that was used for the 11.4 that would be great.