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Lecture 34

VaR and CVaR

Introduction

This is the first lecture co-written by our new CIO, Jonathan Larkin. Conditional Value at Risk (CVaR) is one of the most powerful tools in modern risk management. It estimates and answer to the question "On the worst p percent of days, how much money can I expect to lose?" It is a way to check if your current portfolio meets risk tolerance levels and to evaluate multiple portfolios when selecting assets. It is also useable for portfolio optimization as we will discuss in future lectures.

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