Conditional Value at Risk

Conditional Value at Risk (CVaR) is a financial metric used to assess the risk of extreme losses. It estimates the average loss that could occur beyond a certain worst-case threshold, typically the value-at-risk (VaR). In other words, CVaR looks at the tail-end of potential losses and calculates the expected severity if losses exceed a specified level, helping investors understand potential damages in very adverse scenarios. It provides a more comprehensive view of risk by focusing on the most severe outcomes, aiding better risk management and strategic decision-making.