Enhancing Risk Management: Comparing VaR and CVaR Models for Stock Portfolios and Swaptions

Abstract

This study highlights practical application of Value at Risk (VaR) and Conditional Value at Risk (CVaR) as risk measures for financial portfolios, with a specific focus on stock portfolios and interest products like Swaps and Derivatives. By analyzing calculation methods of CVaR and VaR, this work aims show their effectiveness in capturing tail risk present in different assets classes with varying risk profiles. Through different methods of implementing those two models, relative strengths and limitation of both models will be revealed, offering in return actionable insights for practitioners aiming to optimize risk management strategies with diverse portfolios.