estimate risk capital using conditional VaR

[ajsa]

Hi David,

I read "Typically banks estimate risk capital using conditional VaR". How should I understand it?

Thanks.

 

[David Harper CFA FRM]

Hi asja - For our purposes (all are ETL), CVaR = ES; e.g., 99% CVaR is average loss "in the tail" that exceeds 99%.
"Conditional" is a good name for it: Expected (Loss | Loss > VaR).
David

 

[ajsa]

Hi David,

sorry I did not get it.. are you saying Typically banks estimate risk capital using "ES”? (why?) or you are saying this statement using conditional VaR is problematic?

Thanks.

 

[David Harper CFA FRM]

I'm saying CVaR = expected shortfall (ES)