# Difference between revisions of "Credit Value at Risk"

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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
- A Confidence Level

Given a confidence level , the CVaR of calculated portfolio loss at the confidence level is the smallest number such that the probability that the loss exceeds is at least .

## 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