# Conditional Value at Risk (CVaR)

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## Definition of 'Conditional Value at Risk (CVaR)'

Conditional Value at Risk (CVaR) is a risk measure that is used to quantify the expected loss in excess of a given threshold. It is a more conservative measure than Value at Risk (VaR), as it takes into account the probability of larger losses.

CVaR is calculated by taking the expected value of all losses that are greater than a given threshold. This threshold is often set at the 95th percentile, which means that CVaR represents the expected loss that would be exceeded 5% of the time.

CVaR can be used to compare the risk of different investments or to make decisions about how to allocate capital. It is also used by regulators to set capital requirements for banks and other financial institutions.

One of the advantages of CVaR is that it is a coherent risk measure. This means that it satisfies certain mathematical properties that make it a consistent and reliable measure of risk.

Another advantage of CVaR is that it is easy to understand and communicate. This makes it a useful tool for investors and regulators who need to make decisions about risk.

However, CVaR can also be a disadvantage. It can be more computationally expensive to calculate than VaR, and it can be more difficult to interpret.

Overall, CVaR is a useful risk measure that can be used to quantify the expected loss in excess of a given threshold. It is a more conservative measure than VaR, but it is also more consistent and easier to understand.

CVaR is calculated by taking the expected value of all losses that are greater than a given threshold. This threshold is often set at the 95th percentile, which means that CVaR represents the expected loss that would be exceeded 5% of the time.

CVaR can be used to compare the risk of different investments or to make decisions about how to allocate capital. It is also used by regulators to set capital requirements for banks and other financial institutions.

One of the advantages of CVaR is that it is a coherent risk measure. This means that it satisfies certain mathematical properties that make it a consistent and reliable measure of risk.

Another advantage of CVaR is that it is easy to understand and communicate. This makes it a useful tool for investors and regulators who need to make decisions about risk.

However, CVaR can also be a disadvantage. It can be more computationally expensive to calculate than VaR, and it can be more difficult to interpret.

Overall, CVaR is a useful risk measure that can be used to quantify the expected loss in excess of a given threshold. It is a more conservative measure than VaR, but it is also more consistent and easier to understand.

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Copyright © 2004-2023, MyPivots. All rights reserved.