Conditional VaR

Hi guys,

Am I right in interpreting Conditional VaR in the following way:

Conditional VaR is the average loss expected, if the loss breaches the VaR level.

Let’s say VaR is $1 million over a one day period, with a level of significance of 5%.

Conditional VaR is the average loss expected if the loss on my portfolio over a one-day period exceeds $1 million.

Is this interpretation correct?


Kind of…

think of it as an integral of x*f(x) from negative infinity to the VaR boundary. As you might recall, the “expected value” of a continuous pdf is the integral of x* f(x)…so the conditional VaR is the expected value of the pdf limited to the pdf curve beyond the VaR level.

It’s also called expected shortfall.

In other words, I would essentially agree with what you said but I would replace average with expected value.