Explain how tail risk in a credit portfolio is measured and controlled

Credit returns are negatively skewed: modest spread income usually, occasional large losses from defaults or spread blowouts, and correlations that rise in a crisis. Value at risk gives a loss threshold at a chosen confidence level but says nothing about losses beyond it; conditional VaR, or expected shortfall, averages the losses beyond VaR and describes the tail better. Incremental VaR shows how VaR changes when a position is added, and relative VaR measures risk against a benchmark. Scenario analysis and stress tests add judgement where history is thin. Controls include diversification by issuer and sector, position limits, and hedges such as buying CDS protection or put options on credit ETFs. The trap is trusting normal-distribution VaR for fat-tailed credit returns.