Market risk

From The Jolly Contrarian
Jump to navigation Jump to search
A word about credit risk mitigation


Legal security: MortgagePledgeLienBailment
Equitable security: Chargefixedfloating | ABWOS | Equitable lien
Credit risk mitigation: Title transfer | Guarantee | Letter of credit | Netting
Friends and relations: Rehypothecation | Equivalent
Documents: 1994 ISDA CSA (NY law) | 1995 ISDA CSA | 1995 ISDA CSD (English law)
Regulation: LPA 1925 | Financial Collateral Regulations | LPMPA 1994

Index — Click ᐅ to expand:

Get in touch
Comments? Questions? Suggestions? Requests? Sign up for our newsletter? Questions? We’d love to hear from you.
BREAKING: Get the new weekly newsletter here Old editions here

Market risk /ˈmɑːkɪt rɪsk/ (n.)

The risk that the asset, investment, product or underlier in which you have invested goes up when you want it to go down, or down when you want it to go up.

Market risk can be contrasted with credit risk: the risk that the counterparty with whom you have entered a transaction to take some market risk, cannot pay you the return your market risk has earned you, because it is broke.

Market risk and credit risk, therefore, in many ways, pull in opposite directions: a fellow who is taking a bath on his market risk won’t be too fussed if his counterparty blows up (and given the flawed asset provisions of Section 2(a)(iii) might actually quite like that idea); a lady who is massively in-the-money will be horrified if her counterparty fails.

Hence, initial margin and variation margin.

See also