Difference between revisions of "Credit Value at Risk"

From Open Risk Manual
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CVaR is a quantile measure and requires the specification of  
 
CVaR is a quantile measure and requires the specification of  
* An aggregate Portfolio Loss (or Profit and Loss) variable <math>L=\sum L_{i}</math>
+
* An aggregate Portfolio Loss (or Profit and Loss) variable constructed as the sum of potential individual losses <math>L=\sum L_{i}</math>
 
* A [[Confidence Level]] <math>\alpha</math>
 
* A [[Confidence Level]] <math>\alpha</math>
  
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* [https://en.wikipedia.org/wiki/Value_at_risk Wikipedia]
 
* [https://en.wikipedia.org/wiki/Value_at_risk Wikipedia]
 
* [[Economic Capital]]
 
* [[Economic Capital]]
 
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[[Category:Credit Portfolio Management]]
 
[[Category:Credit Portfolio Management]]

Revision as of 22:18, 8 November 2019

Definition

Credit Value at Risk (CVaR) is a Risk Measure that aims to capture the downside value risk of a Credit Portfolio.

CVaR is a quantile measure and requires the specification of

  • An aggregate Portfolio Loss (or Profit and Loss) variable constructed as the sum of potential individual losses L=\sum L_{i}
  • A Confidence Level \alpha


Given a confidence level \alpha\in(0,1), the CVaR of calculated portfolio loss L at the confidence level \alpha is the smallest number K such that the probability that the lossL exceeds K is at least \alpha.

Usage

Credit Value at Risk is used in conjunction with a Credit Portfolio Model, a computational approach for the generation of future scenarios including different risk realizations.

Issues and Challenges

  • CVaR has been developed largely as a mirror of the Value at Risk measure for portfolios of marketable securities, yet the more illiquid nature of credit portfolios forces substantial further assumptions and associated Model Risk
  • CVaR inherits the weaknesses of VaR frameworks

See also

Contributors to this article

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