Portfolio Management: Intro to Risk Management Flashcards
CVaR
Conditional VaR, a tail loss measure. The weighted average of all loss outcomes in the statistical distribution that exceed the VaR loss.
Delta
The sensitivity of the derivative price to a small change in the value of the underlying asset.
Enterprise risk management
An overall assessment of a company’s risk position. A centralized approach to risk management sometimes called firmwide risk management.
Extreme value theory
A branch of statistics that focuses primarily on extreme outcomes.
Financial risk
The risk that environmental, social, or governance risk factors will result in significant costs or other losses to a company and its shareholders; the risk arising from a company’s obligation to meet required payments under its financing agreements.
Gamma
A numerical measure of how sensitive an option’s delta (the sensitivity of the derivative’s price) is to a change in the value of the underlying.
Human capital
The accumulated knowledge and skill that workers acquire from education, training, or life experience and the corresponding present value of future earnings to be generated by said skilled individual.
Liquidity risk
The risk that a financial instrument cannot be purchased or sold without a significant concession in price due to the size of the market.
Market risk
The risk that arises from movements in interest rates, stock prices, exchange rates, and commodity prices.
Non-financial risks
Risks that arise from sources other than changes in the external financial markets, such as changes in accounting rules, legal environment, or tax rates.
Operational risk
The risk that arises from inadequate or failed people, systems, and internal policies, procedures, and processes, as well as from external events that are beyond the control of the organization but that affect its operations.
Rho
The sensitivity of the option price to the risk-free rate.
Risk
Exposure to uncertainty. The chance of a loss or adverse outcome as a result of an action, inaction, or external event.
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
Risk exposure
The state of being exposed or vulnerable to a risk. The extent to which an organization is sensitive to underlying risks.
Risk governance
The top-down process and guidance that directs risk management activities to align with and support the overall enterprise.
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 the new actual level of risk so that it continues to be aligned with the desired level of risk.
Risk management framework
The infrastructure, process, and analytics needed to support effective risk management in an organization.
Risk shifting
Actions to change the distribution of risk outcomes.
Risk tolerance
The amount of risk an investor is willing and able to bear to achieve an investment goal.
Risk transfer
Actions to pass on a risk to another party, often, but not always, in the form of an insurance policy.
Scenario analysis
Analysis that shows the changes in key financial quantities that result from given (economic) events, such as the loss of customers, the loss of a supply source, or a catastrophic event; a risk management technique involving examination of the performance of a portfolio under specified situations. Closely related to stress testing.
Solvency risk
The risk that an organization does not survive or succeed because it runs out of cash, even though it might otherwise be solvent.
Stress testing
A specific type of scenario analysis that estimates losses in rare and extremely unfavorable combinations of events or scenarios.
Value at risk
A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
VaR
A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
Vega
A measure of the sensitivity of an option’s price to changes in the underlying’s volatility.
