Expected Shortfall (CVaR)

Expected Shortfall, also known as Conditional Value at Risk (CVaR), is a risk measure used to assess potential losses in finance. It calculates the average loss that occurs in the worst-case scenarios beyond a certain confidence level (like the worst 5% of outcomes). While Value at Risk (VaR) indicates a maximum expected loss, Expected Shortfall provides a more insightful view by focusing on the severity of losses when things go wrong. Essentially, it helps investors understand not just how much they might lose, but also how bad those losses could be in extreme situations.