Risk Measurement in Portfolio Management: VaR and CVaR Analysis

Jane Smith is a portfolio manager of a mid-sized investment firm. She is tasked with evaluating the risk profile of her firm's equity portfolio, which is heavily concentrated in technology stocks. The firm has recently experienced higher than average volatility in its portfolio returns, raising concerns among clients about potential downside risks. Jane decides to deeply analyze the risk metrics associated with her portfolio, particularly focusing on Value at Risk (VaR) and Conditional Value at Risk (CVaR).

In light of the above context, your task is to explain how Jane can calculate and interpret both VaR and CVaR in relation to her equity portfolio. Additionally, discuss the implications of these risk measures on her investment decisions and how they can help in better risk management.