Market risk: Difference between revisions

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(Created page with "The risk in a financial product that the investment or underlier in question goes up or down. Contrast this with the credit risk of an instrument, which is the risk that your...")
 
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The risk in a financial product that the investment or underlier in question goes up or down. Contrast this with the credit risk of an instrument, which is the risk that your counterparty doesn’t pay you the performance.
{{a|collateral|}}The risk in a financial product that the investment or [[underlier]] in question goes up or down. Contrast this with the [[credit risk]] of an instrument, which is the risk that your [[counterparty]] doesn’t pay you the spectacular performance of your financial product.


Market risk and credit risk are therefore, in many ways,  pull in opposite directions. A swap counterparty who is [[out-of-the-money|taking a bath]] from a market risk perspective won’t be too fussed if {{sex|his}} [[counterparty]] fails (and given the [[flawed asset]] provisions of Section {{isdaprov|2(a)(iii)}} might actually quite like that idea); a swap [[counterparty]] who is massively [[in-the-money]] will be most concerned if {{sex|her}} [[counterparty]] fails. Hence [[initial margin]] and [[variation margin]].
[[Market risk]] and [[credit risk]] therefore, in many ways,  pull in opposite directions. A fellow who is [[out-of-the-money|taking a bath]] from a market risk perspective won’t be too fussed if {{sex|his}} [[counterparty]] fails (and given the [[flawed asset]] provisions of Section {{isdaprov|2(a)(iii)}} might actually quite like that idea); a lady who is massively [[in-the-money]] will be most concerned if {{sex|her}} [[counterparty]] fails. Hence, [[initial margin]] and [[variation margin]].


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*[[Credit risk]]
*[[Credit risk]]