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Encyclopedia of Operations Research and Management Science pp 258–266Cite as

Conditional Value-at-Risk (CVaR)

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Introduction

Conditional Value-at-Risk (CVaR), introduced by Rockafellar and Uryasev (2000), is a popular tool for managing risk. CVaR approximately (or exactly, under certain conditions) equals the average of some percentage of the worst case loss scenarios. CVaR risk measure is similar to the Value-at-Risk (VaR) risk measure which is a percentile of a loss distribution. VaR is heavily used in various engineering applications, including financial ones. VaR risk constraints are equivalent to the so called chance constraints on probabilities of losses. Some risk communities prefer VaR, others prefer chance (or probabilistic) functions. There is a close correspondence between CVaR and VaR: with the same confidence level, VaR is a lower bound for CVaR. Rockafellar and Uryasev (2000, 2002) showed that CVaR is superior to VaR in optimization applications. The problem of choice between VaR and CVaR, especially in financial risk management, has been quite popular in academic literature....

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Author information

Authors and Affiliations

  1. American Optimal Decisions, Gainesville, FL, 32608, USA

    Gaia Serraino

  2. Risk Management and Financial Engineering Lab, Department of Industrial and Systems Engineering, University of Florida, 303 Weil Hall, 116595, Gainesville, FL, 32611-6595, USA

    Stanislav Uryasev

Authors
  1. Gaia Serraino
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  2. Stanislav Uryasev
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Corresponding author

Correspondence to Stanislav Uryasev .

Editor information

Editors and Affiliations

  1. Robert H. Smith School of Business, University of Maryland, College Park, MD, USA

    Saul I. Gass

  2. Robert H. Smith School of Business and Institute for Systems Research, University of Maryland, College Park, MD, USA

    Michael C. Fu

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© 2013 Springer Science+Business Media New York

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Serraino, G., Uryasev, S. (2013). Conditional Value-at-Risk (CVaR). In: Gass, S.I., Fu, M.C. (eds) Encyclopedia of Operations Research and Management Science. Springer, Boston, MA. https://doi.org/10.1007/978-1-4419-1153-7_1232

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  • DOI: https://doi.org/10.1007/978-1-4419-1153-7_1232

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  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4419-1137-7

  • Online ISBN: 978-1-4419-1153-7

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