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Risk

• The chance of financial loss, or more formally, the variability of returns associated with a given asset. The chance that actual outcomes may differ from those expected.

• The possibility that an investment will lose or not gain value; also refers to a peril covered by an insurance contract.

• Degree of uncertainty of return on an asset.

• Possibility that an investment's actual return will be different than expected; includes the possibility of losing some or all of the original investment. Measured by variability of historical returns, or dispersion of historical returns around their average return.

• Is the variability inherent in investment, speculative or trading activities. The greater the variability, the higher the risk. Risk can be attributed to many factors. As such, the specification of a risk can described with the use of an associated qualifying term. These terms include but are not limited to credit, counterparty, liquidity, market, fraud, currency, roll, agency, coupon, event, corporate and country.

• Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset.

 
 

Follow this link for all the terms related to risk.

 
 Embedded terms in definition
 Agency
Asset
Average
Contract
Counterparty
Coupon
Credit
Currency
Dispersion
Event
Liquidity
Market
Return
Standard deviation
Trading
Uncertainty
Will
 
 Referenced Terms
 Accounting exposure: The change in the value of a firm's foreign currency denominated accounts due to a change in exchange rates.The Risk resulting from the effects of changes in foreign exchange rates on the translated value of a firm's financial statement accounts denominated in a given foreign currency.

 Actual hedging: Is the Risk management of a position when a hedger has a bona fide long or short actual position and is involved in an offsetting transaction. This offset is usually in the derivatives market.

 Additional hedge: A protection against borrower fallout Risk in the mortgage pipeline.

 Advance commitment: A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offset Risk by purchasing a futures contract to fix the sales price.

 Adverse selection problem: Banks have to be aware of a particular type of borrowers. Some borrowers will have hidden negative information not available to the bank. As the bank demands a higher interest rate, borrowers with safe projects will drop out. Hence, the fraction of borrowers with Risky projects will depend on the interest rate. The higher the interest rate, the higher risk will be the pool of applicants. This is called the adverse selection problem.

 
 Related Terms
 
Affiliate risk
Bankruptcy risk
Basis risk
Business and industry risk
Business risk
Call risk
Commercial risk
Company specific risk
Completion risk
Counterparty risk
Country economic risk
Country financial risk
Country risk
Country risk analysis models
Credit risk
Cross border risk
Currency risk
Currency risk sharing
Default risk
Diversifiable risk
Economic risk
Equilibrium market price of risk
Event risk
Exchange rate risk
Exchange rate risk capital budgeting
Exchange risk
Fallout risk
Financial risk
Firm specific risk
Flat price risk
Force majeure risk
Forecasting risk
Foreign exchange fx risk
Foreign exchange risk
Funding risk
Geographic risk
Herstatt risk
Idiosyncratic risk
Inflation risk
Insolvency risk
Interest rate risk
Interest rate risk management
Liquidity risk
Macro political risk
Market price of risk
Market risk
Market risk return function
Micro political risk
Mortality risk
Mortgage pipeline risk
Nondiversifiable risk
Nonsystematic risk
Operating risk
Operational risk
Overnight delivery risk
Pin risk
Political risk
Prepayment risk
Price risk
Product risk
Purchasing power risk
Rate risk
Regulatory pricing risk
Reinvestment risk
Residual risk
Reverse price risk
Risk adjusted discount rate
Risk adjusted profitability
Risk adjusted return
Risk arbitrage
Risk arrays
Risk averse
Risk capital budgeting
Risk classes
Risk controlled arbitrage
Risk free asset
Risk free rate
Risk indexes
Risk indifferent
Risk lover
Risk management
Risk management document
Risk neutral
Risk of technical insolvency
Risk premium
Risk premium approach
Risk prone
Risk return tradeoff
Risk reversal
Risk seeking
Risk transformation
Risk types
Riskless or risk free asset
Settlement risk
Shortfall risk
Sovereign risk
Specific risk
Systematic risk
Systematic risk principle
Theta risk
Total risk
Undiversifiable risk
Unique risk
Unsystematic risk
Value at risk
Value at risk model
Vega risk
Volatility risk

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