The CVaR of a portfolio is the worst loss expected to be suffered due to counterparty default over a given period of time with a given probability. The time period is known as the holding period and the probability is known as the confidence interval. CVaR is not an estimate of the worst possible loss, but the largest likely loss.
For example, a company might estimate its CVaR over 10 days to be $100 million with a confidence interval of 95%. This would mean there is a one-in-20 (5%) chance of a loss larger than $100 million in the next 10 days.
* see also value-at-risk (VaR)
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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