Entropic value at risk (EVaR) is an allocation method that minimises a measure of tail loss built from every day in the window, each weighted more heavily the worse its loss. It is at least as prudent as CVaR at the same tail share and, unlike CVaR, never collapses onto one worst day when the window is short.
Also seen as: EVaR, entropic VaR
What is Entropic value at risk?
EVaR is the tightest upper bound on the tail loss that can be built from the whole distribution of returns rather than from its worst days alone.
- the portfolio's daily loss
- the Tail share
- every day's loss averaged after an exponential weighting that grows steeply with the size of the loss
- the scale that makes the bound tightest
Large losses dominate the average without the ordinary days being thrown away, so the answer depends smoothly on the weights and never on one single observation.
How does Fincanva handle it?
The method picker labels it "EVaR · Entropic value at risk" and describes it as "More prudent than CVaR, stable even with little history".
- Entropic value at risk is offered at both levels: across the instruments of a strategy, and across the strategies of a Combined.
- Its one setting is the Tail share, from 1% to 25% and 5% by default — the same control as Min CVaR.
- It reads the calculation window (In-sample, 12 months by default) and does not read the Covariance matrix choice.
- No low-data warning is ever shown for it, whatever the window and tail share.
- Weights are never negative.
- The picker marks it "slow to compute": each rebalance solves an optimisation over every day of the window.
How is EVaR different from Min CVaR?
Two differences, and both come from EVaR using every day.
- It is more prudent. At the same tail share, a portfolio's EVaR is never below its CVaR, so the weights that minimise it come out more conservative. That is the purpose, not a side effect.
- It has no small-sample cliff. Min CVaR averages the worst tail-share of days; when the window times the tail share falls below one day, it becomes a single-worst-day rule, and the app warns you. EVaR has no such limit, which is why that warning offers "Switch to EVaR" as one of its two fixes.
Which plan includes Entropic value at risk?
It depends on your plan, at each level where the method is offered.
Inside a strategy
Included from Ultimate upwards. See what each plan includes.
Inside a Combined
Included from Ultimate upwards. See what each plan includes.
What does it look like in practice?
A strategy uses a 1-month in-sample window, about 21 trading days, with a 4% tail share.
- Min CVaR would average the worst 21 × 4% = 0.84 days — less than one — so it can only look at the single worst day, and the app shows "Too little data for this tail share".
- Entropic value at risk uses all 21 days, each weighted by how bad it was. The worst day still counts most, but the second- and third-worst days move the answer too, so a small change in the data does not flip the weights.
Lengthen the window to 12 months, about 252 days, and both methods have enough data; EVaR then still reads a little more deeply into the tail than CVaR at the same 4%.