Introduction to Risk Management Flashcards
What is “Risk”?
(1) Exposure to uncertainty.
(2) The chance of a loss or adverse outcome as a result of an action, inaction, or external event.
What is “Risk Exposure”?
The state of being exposed or vulnerable to a risk.
The extent to which an organization is sensitive to underlying risks.
What is “Risk Management”?
The process of identifying the level of risk an organization wants, measuring the level of risk the organization currently has, taking actions that bring the actual level of risk to the desired level of risk, and monitoring continuous risk.
What is “Risk Management Framework”?
The infrastructure, process, and analytics needed to support effective risk management in an organization.
What is “Risk Governance”
The top-down process and guidance that directs risk management activities to align with and support the overall enterprise.
What is “Enterprise Risk Management”?
An overall assessment of a company’s risk position.
A centralized approach to risk management sometimes called firmwide risk management.
What is “Financial Risk”?
The risk arising from a company’s capital structure and, specifically, from the level of debt and debt-like obligations.
What are “Non-Financial Risks”?
Risks that arise from sources other than changes in the external financial markets, such as changes in accounting rules, legal environment, tax rate.
What is a “Market Risk”?
The risk that arises from movements in interest rates, stock prices, exchange rates, and commodity prices.
What is “Credit Risk”?
the expected economic loss under a potential borrower over the life of the contract.
What is “Operational Risk”?
The risk that arises from inadequate or failed people, systems, and internal policies that are beyond the control of the organization but that affect its operations.
What is “Solvency Risk”?
The risk that an organization does not survive or succeed because it runs out of cash, even thought it might otherwise be solvent.
What is “Beta”?
A measure of the sensitivity of a given investment portfolio to movements in the overall market.
What is “Delta”?
The relationship between the option price and the underlying price, which reflects the sensitivity of the price of the option to changes in the price of an underlying.
What is “Gamma”?
A numerical measure of how sensitive an option’s delta is to a change in the price of an underlying.
What is “Vega”?
The change in a given derivative instrument for a given small change in volatility, holding everything else constant.
What is “Rho”?
The change in a given derivative instrument for a given small change in the risk-free rate, holding everything else constant.
What is “Duration”?
A measure of the approximate sensitivity of a security to a change in interest rates.
I.e., a measure of interest-rate risk.
What is “VaR”
A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
Also known as “Value at Risk”
What is “CVaR”?
Conditional VaR, a tail loss measure.
The weighted average f all loss outcomes in the statistical distribution that exceed the VaR loss.
What is “Extreme Value Theory”?
A branch of statistics that focuses primarily on extreme outcomes.
What is “Scenario Analysis”?
A technique for exploring the performance and risk of investment strategies under different structural regimes.
What is a “Credit Default Swap”?
A type of credit derivative in which one party, the credit protection buyer who is seeking credit protection against a third party, makes a series of regularly scheduled payments to the other party, the credit protection seller.
The seller makes no payments until a credit event occurs.
What is “Risk Transfer”?
Actions to pass on a risk to another party, often, but not always, in the form of an insurance policy.
What is “Risk Shifting”?
Actions to change the distribution of risk outcomes.
