Market risk: Difference between revisions

{{g}}{{a|security|}}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]] 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]].