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Expected shortfall is a risk measure—a concept used in the field of financial risk measurement to evaluate the market risk or credit risk of a portfolio. The "expected shortfall at q% level" is the expected return on the portfolio in the worst q % {\displaystyle q\%} of cases. ES is an alternative to value at risk that is more sensitive to the shape of the tail of the loss distribution.
Expected shortfall is also called conditional value at risk , average value at risk , expected tail loss , and superquantile.
ES estimates the risk of an investment in a conservative way, focusing on the less profitable outcomes. For high values of q {\displaystyle q} it ignores the most profitable but unlikely possibilities, while for small values of q {\displaystyle q} it focuses on the worst losses. On the other hand, unlike the discounted maximum loss, even for lower values of q {\displaystyle q} the expected shortfall does not consider only the single most catastrophic outcome. A value of q {\displaystyle q} often used in practice is 5%.
Expected shortfall is considered a more useful risk measure than VaR because it is a coherent spectral measure of financial portfolio risk. It is calculated for a given quantile-level q {\displaystyle q} , and is defined to be the mean loss of portfolio value given that a loss is occurring at or below the q {\displaystyle q} -quantile.