Tail Risk Metrics are quantitative measures designed to assess the likelihood and potential magnitude of extreme, low-probability adverse events that could significantly impact crypto asset portfolios. They quantify the exposure to rare, severe market downturns.
Mechanism
These metrics, including Value-at-Risk (VaR) at high confidence levels, Conditional Value-at-Risk (CVaR), or Expected Shortfall, analyze historical market data, apply extreme value theory, or simulate future market scenarios. This computational approach quantifies potential losses beyond typical market fluctuations.
Methodology
The strategic application provides a robust framework for extreme event risk management, informs capital adequacy assessments, guides stress testing protocols, and facilitates the construction of more resilient portfolios. This is particularly vital for institutional crypto investing and options trading, where black swan events can have disproportionate impacts.
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