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CVaR / Expected Shortfall

The average loss in the worst-case scenarios beyond VaR.

Conditional Value at Risk (CVaR), also called Expected Shortfall, measures the average loss when losses exceed the VaR threshold. It provides information about the tail risk that VaR misses. For risk management, CVaR is considered more informative than VaR alone.

Formula
CVaRα=E[Loss∣Loss>VaRα]\text{CVaR}_{\alpha} = E[\text{Loss} \mid \text{Loss} > \text{VaR}_{\alpha}]

Related Terms

Value at Risk (VaR)

The maximum expected loss at a given confidence level — but doesn't tell you how bad the tail is.

Monte Carlo Simulation

Generating thousands of possible future scenarios through random sampling.