Conditional Value-at-Risk (CVaR)

Measure and quantify expected loss from unlikely scenarios by assessing conditional value-at-risk (CVaR)

Conditional value-at-risk (CVaR) is the extended risk measure of value-at-risk that quantifies the average loss over a specified time period of unlikely scenarios beyond the confidence level. For example, a one-day 99% CVaR of $12 million means that the expected loss of the worst 1% scenarios over a one-day period is $12 million. CVaR is also known as expected shortfall.

Practitioners in both risk management and portfolio management are increasingly using CVaR. For example:

Depending on the asset classes and types of risk exposure, risk managers employ various mathematical techniques to calculate CVaR, including:

For more information, see Statistics and Machine Learning Toolbox™, Financial Toolbox™, Financial Instruments Toolbox™, and Risk Management Toolbox™.

See also: risk management, market risk, value-at-risk, backtesting, Basel III, systemic risk, credit scoring model, concentration risk