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".
BREAKING DOWN '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.

Risk Assessment
The process of determining the likelihood that a specified negative ... 
Actuary
A professional dealing with the assessment and management of ... 
Weighted Average
An average in which each quantity to be averaged is assigned ... 
Market Risk
The possibility for an investor to experience losses due to factors ... 
Value At Risk  VaR
A statistical technique used to measure and quantify the level ... 
Risk
The chance that an investment's actual return will be different ...

Options & Futures
An Introduction To Value at Risk (VAR)
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Bonds & Fixed Income
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
Active Trading Fundamentals
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". 
Fundamental Analysis
Monte Carlo Simulation With GBM
Learn to predict future events through a series of random trials. 
Term
How Market Segments Work
A market segment is a group of people who share similar qualities. 
Active Trading
Market Efficiency Basics
Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time. 
Fundamental Analysis
5 Basic Financial Ratios And What They Reveal
Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know. 
Investing
What Investors Need to Know About Returns in 2016
Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016. 
Economics
The Basics Of Business Forecasting
Whether business forecasts pertain to finances, growth, or raw materials, it’s important to remember that a forecast is little more than an informed guess. 
Economics
Forces Behind Interest Rates
Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing.

What does Value at Risk (VaR) say about the "tail" of the loss distribution?
The value at risk (VaR) is a statistical measure that assesses, with a degree of confidence, the financial risk associated ... Read Full Answer >> 
What are some common measures of risk used in risk management?
Risk management is a crucial process used to make investment decisions. The process involves identifying the amount of risk ... Read Full Answer >> 
What is finance?
"Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >> 
What is the difference between positive and normative economics?
Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >> 
Do plane tickets get cheaper closer to the date of departure?
The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >> 
Is Colombia an emerging market economy?
Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>