Statistics

Expected Shortfall

Also known as: Conditional VaR, CVaR

The average loss in the worst outcomes beyond the value-at-risk threshold.

Answers "if things go badly, how badly?" - the question VaR refuses to answer.

It is coherent, in particular subadditive: the expected shortfall of a combined portfolio never exceeds the sum of the parts, so it respects diversification. That is why regulators have moved toward it.

The cost. It depends on the shape of the tail, which is the hardest part of a distribution to estimate from limited data. It is the better measure and the harder one to compute reliably - a trade-off worth naming rather than glossing over.

Related terms

Practise this

Put it into practice

Knowing the definition is not the same as spotting where it applies under time pressure. Work the question bank free.

Start practising free

Browse the full quant interview glossary