Conditional Value-at-Risk (CVaR)
The average loss in the worst tail of outcomes, used as a risk objective that focuses on bad scenarios rather than overall volatility.
Category: Optimizer & Performance
What is Conditional Value-at-Risk (CVaR)?
CVaR (also called Expected Shortfall) is the expected loss given that the loss exceeds the Value-at-Risk threshold. Optimizing for CVaR produces portfolios that are more robust to fat-tailed and skewed return distributions than variance-based methods.
Formula
CVaR_\alpha = E[L \mid L \ge VaR_\alpha]