Conditional Value At Risk - CVaR

Filed Under » ,
Dictionary Says

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 Says

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.

Articles Of Interest

  1.

    Accelerating Returns With Continuous Compounding

    Learn the natural log and exponential functions used to calculate this value.

  2. An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".

  3. How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".

  4. Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.

  5. Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.

  6. Taking Shots At CAPM

    Find out why many investors think the capital asset pricing model is full of holes.

  7. George Soros: The Philosophy Of An Elite Investor

    George Soros spent decades as one of the world's elite investors, and even he didn't always come out on top. But when he did, it was spectacular.

  8. Understanding And Playing The Dow Jones Industrial Average

    Learn strategies for investing in this price-weighted index and how to interpret its movements.

  9. Introduction To International CAPM

    ICAPM is one of several models used to determine the required return on an asset, discover its limitations and how to use it.

  10. Arbitrage Squeezes Profit From Market Inefficiency

    This influential strategy capitalizes on the relationship between price and liquidity.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Xenocurrency

    A currency that trades in markets outside of its domestic borders.

  2. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.

  3. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.

  4. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.

  5. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

  6. Chartalism

    A non-mainstream theory of money that emphasizes the impact of government policies and activities on the value of money.
Trading Center