Expected Shortfall

Expected Shortfall (ES), also known as Conditional Value at Risk (CVaR), is a risk measure used in finance to assess the potential losses in an investment or portfolio under adverse conditions. It estimates the average loss that could occur during the worst-case scenarios beyond a certain confidence level (like the worst 5% of outcomes). Essentially, while Value at Risk (VaR) tells you the maximum loss you might expect, Expected Shortfall provides a clearer picture by showing the average of those more extreme losses, helping investors understand the potential severity of their risks.