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Risk (financial)
Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent. Modern portfolio theory initiated by Harry Markowitz in 1952 under his thesis titled "Portfolio Selection" is the discipline and study which pertains to managing market and financial risk. In modern portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition of risk. Types According to Bender and Panz (2021), financial risks can be sorted into five different categories. In their study, they apply an algorithm-based framework and identify 193 single financial risk types, which are sorted into the five categories market risk, liquidity risk, credit risk, business risk and investment risk. Market risk The four standard market risk factors are equity risk, inter ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. One ISO standard, international standard definition of risk is the "effect of uncertainty on objectives". The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, Environmental science, environment, finance, information technology, health, insurance, safety, security, security, privacy, etc). This article provides links to more detailed articles on these areas. The international standard for risk management, ISO 31000, provides principles and general guidelines on managing risks faced by organizations. Defi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Interest Rate Risk
Interest rate risk is the risk that arises for bond owners from fluctuating interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...s. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market. The sensitivity depends on two things, the bond's time to maturity, and the coupon rate of the bond. Calculation Interest rate risk analysis is almost always based on simulating movements in one or more yield curves using the Heath-Jarrow-Morton framework to ensure that the yield curve movements are both consistent with current market yield curves and such that no riskless arbitrage is possible. The Heath-Jarrow-Morton framework was developed in the early 1991 by David Heath of Cornell University, Andrew Morton of Lehman ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Diversification (finance)
In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce financial risk, risk or volatility (finance), volatility by investment, investing in a variety of assets. If asset prices do not change in perfect synchrony, a diversified Portfolio (finance), portfolio will have less variance than the weighted mean, weighted average variance of its constituent assets, and often less volatility than the least volatile of its constituents. Diversification is one of two general techniques for reducing investment risk. The other is hedge (finance), hedging. Examples The simplest example of diversification is provided by the proverb "Don't put all your eggs in one basket". Dropping the basket will break all the eggs. Placing each egg in a different basket is more diversified. There is more risk of losing one egg, but less risk of losing all of them. On the other h ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
IT Risk
It or IT may refer to: * It (pronoun), in English * Information technology Arts and media Film and television * ''It'' (1927 film), a film starring Clara Bow * '' It! The Terror from Beyond Space'', a 1958 science fiction film * ''It!'' (1967 film), a British horror film starring Roddy McDowell * ''It'' (1989 film), a Soviet comedy film directed by Sergei Ovcharov * ''It'' (miniseries), a 1990 television miniseries film based on Stephen King's novel * ''It'' (Phish video), a 2004 DVD set about the Phish festival * '' Incredible Tales'', simply known as ''I.T.'', a 2004 Singaporean horror anthology TV series * ''I.T.'' (film), a 2016 film starring Pierce Brosnan * ''It'' (2017 film), a film adaptation of Stephen King's novel **'' It Chapter Two'' (2019), the direct sequel to the 2017 film **'' It – Welcome to Derry,'' an upcoming prequel television series scheduled to be released in 2026 Characters * It, properly the Psammead, the title character of the 1902 novel '' Fiv ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Legal Risk
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a science and as the art of justice. State-enforced laws can be made by a legislature, resulting in statutes; by the executive through decrees and regulations; or by judges' decisions, which form precedent in common law jurisdictions. An autocrat may exercise those functions within their realm. The creation of laws themselves may be influenced by a constitution, written or tacit, and the rights encoded therein. The law shapes politics, economics, history and society in various ways and also serves as a mediator of relations between people. Legal systems vary between jurisdictions, with their differences analysed in comparative law. In civil law jurisdictions, a legislature or other central body codifies and consolidates the law. In common law syst ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Reputational Risk
Reputational damage is the loss to financial capital, social capital and/or market share resulting from damage to an organization's reputation. This is often measured in lost revenue, increased operating, capital or regulatory costs, or destruction of shareholder value. Ethics violations, safety issues, security issues, a lack of sustainability, poor quality, and lack of or unethical innovation can all cause reputational damage if they become known. Reputational damage can result from an adverse or potentially criminal event, regardless of whether the company is directly responsible for said event (as was the case of the Chicago Tylenol murders in 1982). Extreme cases may lead to large financial losses or bankruptcy, as per the case of Arthur Andersen. Reputation is recorded as an intangible asset in a company's financial records. Hence, damage to a firm's reputation has financial repercussions. Minor issues can be amplified by external social processes which lead to even mor ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Non-financial Risk
Non-financial risks (NFR) are all of the risks which are not covered by traditional financial risk management. This negative definition resembles the initial definition of operational risk, and it depends on the bank or corporation whether or not they use the term operational risk synchronously with NFR. Since 2019, the new term NFR became popular in the risk management sector. Examples Non-financial risks include: * Operational risk (Op risk). In case that Op risk is considered a part of NFR (and not as equivalent), Op risk summarizes e.g. those risks which can be quantified by the use of scenario models. Examples are pandemics, floods and other weather events. * Conduct risk means that the behavior of the cooperation's employees leads to losses. * Cyber risk and IT risk are possible losses due to security breaches. * Compliance risks are risks related to governance, risk management, and compliance. Managing the compliance risk means putting a price tag on potential failures ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Systemic Risk
In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to the risk associated with any one individual entity, group or component of a system, that can be contained therein without harming the entire system.Banking and currency crises and systemic risk George G. Kaufman (World Bank), Internet Archive It can be defined as "financial ''system'' instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries". It refers to the risks imposed by ''interlinkages'' and ''interdependencies'' in a system or market, where the failure of a single entity or cluster of entities can cause a casca ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Value At Risk
Value at risk (VaR) is a measure of the risk of loss of investment/capital. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by firms and regulators in the financial industry to gauge the amount of assets needed to cover possible losses. For a given portfolio, time horizon, and probability ''p'', the ''p'' VaR can be defined informally as the maximum possible loss during that time after excluding all worse outcomes whose combined probability is at most ''p''. This assumes mark-to-market pricing, and no trading in the portfolio. For example, if a portfolio of stocks has a one-day 5% VaR of $1 million, that means that there is a 0.05 probability that the portfolio will fall in value by $1 million or more over a one-day period if there is no trading. Informally, a loss of $1 million or more on this portfolio is expected on 1 day out of 20 days (because of 5% p ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Supply And Demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris_paribus#Applications, holding all else equal, the unit price for a particular Good (economics), good or other traded item in a perfect competition, perfectly competitive market, will vary until it settles at the market clearing, market-clearing price, where the quantity demanded equals the quantity supplied such that an economic equilibrium is achieved for price and quantity transacted. The concept of supply and demand forms the theoretical basis of modern economics. In situations where a firm has market power, its decision on how much output to bring to market influences the market price, in violation of perfect competition. There, a more complicated model should be used; for example, an oligopoly or product differentiation, differentiated-product model. Likewise, where a buyer has market power, models such as monopsony will be more a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Model Risk
In finance, model risk is the risk of loss resulting from using insufficiently accurate models to make decisions, originally and frequently in the context of valuing financial securities. Here, Rebonato (2002) defines model risk as "the risk of occurrence of a significant difference between the mark-to-model value of a complex and/or illiquid instrument, and the price at which the same instrument is revealed to have traded in the market". However, model risk is increasingly relevant in contexts other than financial securities valuation, including assigning consumer credit scores, real-time prediction of fraudulent credit card transactions, and computing the probability of an air flight passenger being a terrorist. In fact, Burke regards failure to use a model (instead over-relying on expert judgment) as a type of model risk.http://www.siiglobal.org/SII/WEB5/sii_files/Membership/PIFs/Risk/Model%20Risk%2024%2011%2009%20Final.pdf Types Derman describes various types of model ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
