Minimum Entropic DaR

CDaR (Chekhlov, Uryasev and Zabarankin, 2005) reframes tail risk in drawdown space rather than return space: instead of averaging the worst fraction of one-period losses, it averages the worst fraction of running drawdowns from the high-water mark of cumulative return. CDaR is a coherent path-dependent risk measure and is the natural target for capital-preservation mandates.

EDaR is the entropic version of CDaR (Ahmadi-Javid, 2012; Cajas, 2021): apply the EVaR construction to the drawdown process instead of the return process. The result is a smooth, coherent tail-of-drawdown measure that upper-bounds CDaR pointwise. As with EVaR vs CVaR, EDaR is more conservative on heavy-tailed loss processes and is numerically friendlier than CDaR.

FolioLab implements minimum-EDaR via skfolio's drawdown-risk optimiser with RiskMeasure.EDAR. The confidence level is fixed at beta = 0.95 and is not a request field. It is one of the two standard choices, 0.95 and 0.99, used for institutional reporting. The drawdown path is built from the daily returns of the run window. Per-name weight bounds, asset exclusions, and group sum limits such as sector caps pass to the estimator and enter the same convex programme.

The drawdowns are uncompounded. skfolio sums the daily returns rather than compounding them, against a peak that starts at zero. The result's edar_95 is on the compounded curve, which is not what this method minimized. The minimized value is edar_95_uncompounded, and the result names it in objective_metric. The PDF and Excel reports show both.