CFA Level I · CFA Level I Exam · Introduction to Risk Management
Compared with value at risk, conditional value at risk (CVaR) is most likely to:
CVaR measures the expected loss given that the loss exceeds the VaR threshold. It therefore captures tail severity, which VaR ignores, and it is at least as large as VaR at the same confidence level.
- Aignore losses beyond the VaR threshold
- Bmeasure the expected loss given that the loss exceeds VaRCorrect
- Calways equal VaR at the same confidence level
Explanation
CVaR is the average loss in the tail beyond the VaR cutoff, so it captures the severity of extreme losses. VaR ignores losses past the threshold, and CVaR is at least as large as VaR, not always equal.
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