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. Conditional value at risk is also known as expected shortfall.
Practitioners in both risk management and portfolio management are increasingly using conditional value-at-risk. For example:
Depending on the asset classes and types of risk exposure, risk managers employ various mathematical techniques to calculate conditional value-at-risk, including: