Recently there has been renewed debate about the relative merits of Value at Risk (VaR) and Conditional Value at Risk (CVaR, or Expected Shortfall) as measures of financial risk, together with an increasing insistence that such issues cannot be meaningfully discussed without taking into account how the relevant values are to be computed. This prompts an enquiry into the basics of financial risk management, and it seems that key insights from other areas such as weather forecasting have been ignored by the financial community. We introduce a definition of ‘consistency’ of a risk measure and show among other things that VaR has special properties not shared by any other risk measure.
[PDF] Slides of the presentation.