Optimization of conditional value-at-risk

A new approach to optimizing or hedging a portfolio of financial instruments to reduce risk is presented and tested on applications. It focuses on minimizing conditional value-at-risk (CVaR) rather than minimizing value-at-risk (VaR), but portfolios with low CVaR necessarily have low VaR as well. CVaR, also called mean excess loss, mean shortfall, or tail VaR, is in any case considered to be a more consistent measure of risk than VaR. Central to...