Expected shortfall
What is expected shortfall?
This is a way of measuring the market risk or credit risk of a portfolio. It's a useful extension to value at risk.
Where have you heard about expected shortfall?
You might have heard of it under a different name - it's sometimes called conditional value at risk, average value at risk or expected tall loss. You might have heard how it's used to reduce the probability of incurring large losses.
What you need to know about expected shortfall.
Expected shortfall is a coherent risk measure designed to assess the likelihood of loss exceeding the value at risk. To calculate it, you would need to take a weighted average between the value at risk and losses exceeding this value. Value at risk does not assess the tail end of the of the distribution of loss, meaning its scope is limited. Expected shortfall is more sensitive to the shape of the tail of the loss distribution.
