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What is tail value at risk?

Tail value at risk

Tail value at risk (TVaR) is a statistical measure of risk associated with the more general value at risk (VaR) approach, which measures the maximum amount of loss that is anticipated with an investment portfolio over a specified period, with a degree of confidence.

Where have you heard about tail value at risk?

You might know of it if you’ve studied financial mathematics. It’s one of a number of different risk measures that have been put forward to try to quantify the risk involved where the outcome is unknown.

What you need to know about tail value at risk.

There are subtle differences between VaR and TVaR. TVaR is the probable weighted loss above a certain probability level, while VaR is the loss at a certain probability level.

VaR is typically used by banks to measure risk over a very short timeframe, for example less than a month. TVaR is becoming the standard framework for insurance companies to measure risk as it's effective over timeframes lasting a year or more.

Find out more about tail value at risk.

Read our definition of value at risk to learn about a similar risk measurement.

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