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CFA Level I · CFA Level I Exam · Introduction to Risk Management

Relative to value at risk, conditional value at risk (CVaR) is most likely to provide additional information about:

CVaR adds information about the average loss in the tail beyond the VaR threshold. VaR only gives the cutoff loss at a probability level, whereas CVaR is the expected loss given that the cutoff is exceeded. Sensitivity to a risk factor comes from other measures.

  1. Athe probability of a loss occurring
  2. Bthe average size of losses beyond the VaR thresholdCorrect
  3. Cthe sensitivity of value to a single risk factor

Explanation

CVaR is the expected loss given that the loss exceeds the VaR level, so it describes the tail. The loss probability is already chosen as the VaR confidence level, and sensitivity to a risk factor is captured by measures such as duration or delta.

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