Answer: Expected loss given default (ELGD)

**Explanation:** - **Option A (Incorrect):** Value at Risk (VaR) measures the minimum loss expected over a given time period at a certain confidence level. However, VaR does not provide an average of extreme losses, as it only indicates the threshold below which losses will not exceed with a given probability. - **Option B (Incorrect):** The standard deviation of loss is a measure of dispersion around the mean loss. For distributions with fat tails, the standard deviation may not accurately capture extreme losses, making it unsuitable for estimating average extreme losses. - **Option C (Correct):** Expected loss given default (ELGD) is analogous to Conditional VaR (CVaR) in the credit risk context. It estimates the average loss in scenarios where default occurs, answering the question: *If the underlying asset defaults, what is the average loss?* This makes ELGD the most appropriate metric for estimating average extreme losses in bonds.

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