Conditional Value At Risk - CVaR

AAA

DEFINITION of 'Conditional Value At Risk - CVaR'

A risk assessment technique often used to reduce the probability a portfolio will incur large losses. This is performed by assessing the likelihood (at a specific confidence level) that a specific loss will exceed the value at risk. Mathematically speaking, CVaR is derived by taking a weighted average between the value at risk and losses exceeding the value at risk.

This term is also known as "Mean Excess Loss", "Mean Shortfall" and "Tail VaR".

INVESTOPEDIA EXPLAINS 'Conditional Value At Risk - CVaR'

Conditional Value at Risk was created to be an extension of Value at Risk (VaR). The VaR model does allow managers to limit the likelihood of incurring losses caused by certain types of risk - but not all risks. The problem with relying solely on the VaR model is that the scope of risk assessed is limited, since the tail end of the distribution of loss is not typically assessed. Therefore, if losses are incurred, the amount of the losses will be substantial in value.

RELATED TERMS
  1. Risk Assessment

    The process of determining the likelihood that a specified negative ...
  2. Actuary

    A professional statistician working for an insurance company. ...
  3. Value At Risk - VaR

    A statistical technique used to measure and quantify the level ...
  4. Market Risk

    The possibility for an investor to experience losses due to factors ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Weighted Average

    An average in which each quantity to be averaged is assigned ...
Related Articles
  1. Accelerating Returns With Continuous ...
    Bonds & Fixed Income

    Accelerating Returns With Continuous ...

  2. An Introduction To Value at Risk (VAR)
    Options & Futures

    An Introduction To Value at Risk (VAR)

  3. How To Convert Value At Risk To Different ...
    Active Trading Fundamentals

    How To Convert Value At Risk To Different ...

  4. Monte Carlo Simulation With GBM
    Fundamental Analysis

    Monte Carlo Simulation With GBM

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center