The average loss on the days when the loss is beyond the VaR threshold. It looks into the tail that VaR ignores and is a coherent risk measure.
Where you will meet it
Expected shortfall comes up in 17 learning outcome notes across the FRM syllabus.
A few of them:
Banks FRM Part I · Financial markets and products
“These are marked to market daily, gains and losses go straight to profit and loss, and capital is set against market risk, using VaR or expected shortfall.”
The Building Blocks of Risk Management FRM Part I · Foundations of risk management
“Quantitative measures include standard deviation, sensitivities, value at risk, expected shortfall and stress tests.”
Measures of Financial Risk FRM Part I · Valuation and risk models
“Expected shortfall (ES), also called conditional VaR, is the average loss given that the loss reaches or exceeds VaR.”
Estimating Market Risk Measures: An Introduction and Overview FRM Part II · Market risk measurement and management
“Expected shortfall (ES) is the average loss in the tail beyond VaR, that is, the expected loss given that the loss exceeds VaR.”
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