Expected Tail Loss (ETL)

Expected Tail Loss (ETL), also called Conditional VaR (CVaR) or Expected Shortfall (ES), measures the average loss when losses exceed VaR. For example, if 95% VaR is $100k, ETL might be $150k — meaning when you're in the worst 5% of outcomes, you lose $150k on average. ETL is superior to VaR because it quantifies tail severity, not just the threshold. VaR says 'you'll lose more than $100k 5% of the time' but doesn't say how much more. ETL answers that: $150k on average. Basel III uses ETL (called ES) for trading book capital requirements because it's more sensitive to tail risk. Coherent risk measure: Unlike VaR, ETL satisfies all axioms of coherent risk measures (subadditivity, monotonicity, etc.).