Conditional Value At Risk - CVaR

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.

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