A danger evaluation metric quantifies the anticipated loss on condition that the loss is at or past a selected threshold. For instance, if a portfolio’s evaluation signifies a 5% threshold, it estimates the typical loss the portfolio is predicted to incur through the worst 5% of outcomes. This offers a extra complete understanding of potential draw back danger than merely figuring out the brink worth itself.
This strategy affords improved danger administration by offering a extra full image of potential losses, significantly in excessive situations. This enhanced understanding permits for extra knowledgeable decision-making concerning danger mitigation methods. Its growth addressed limitations in earlier strategies that solely targeted on a single threshold, providing a extra nuanced perspective on the magnitude of losses past that time, main to higher capital allocation and danger adjusted return.
