How is Risk Defined in Mathematical Terms?

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How is Risk Defined in Mathematical Terms?

Short answer In layman’s terms, risk is the possibility of harm or loss. In finance it refers to the possibility of a monetary loss associated with investments.

Example: The most common measure of risk is simply standard deviation of portfolio returns. The higher this is, the more randomness in a portfolio, and this is seen as a bad thing.

Long answer Financial risk comes in many forms:

Market risk: The possibility of loss due to movements in the market, either as a whole or specific investments

Credit risk: The possibility of loss due to default on a financial obligation

Model risk: The possibility of loss due to errors in mathematical models, often models of derivatives. Since these models contain parameters, such as volatility, we can also speak of parameter risk, volatility risk, etc.

Operational risk: The possibility of loss due to people, procedures or systems. This includes human error and fraud

Legal risk: The possibility of loss due to legal action or the meaning of legal contracts

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wow good work dear awesome article ....please subscribe me and i will subscribe you

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3 years ago

I like that lol. Then we talk of risk management

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3 years ago

Yah I can support you... Me too.. I hope hahaha😅😅

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3 years ago

I will call on me anytime🙏

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3 years ago

Oh if i heard the word RISK my head hearts.. outs and my wallet had a whole in it.. 😅

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3 years ago

😂😂😂Most times risk involves money

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3 years ago

Nice article

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3 years ago

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3 years ago

Done Sir

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3 years ago

It is such an educative post dear. Thanks for sharing it.

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3 years ago

Thank you very much eyerish for being here💓💓

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3 years ago

It's completely my pleasure dear 😍

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3 years ago