Term Risk
Term risk is the potential for loss related to the time remaining until a contract expires or a debt matures. In derivatives, it is the risk that time will work against a position or that longer-term market views will change.
Managing term risk involves selecting the right expiration cycles and understanding the term structure. It is a vital risk component in all derivative portfolios.
Glossary
Counterparty Credit Risk
Risk ⎊ This represents the potential for loss arising from a counterparty's failure to meet its contractual obligations in a derivatives trade, distinct from market risk which concerns asset price movement.
Lookback Option Analysis
Analysis ⎊ Lookback option analysis involves a detailed examination of options contracts where the strike price is determined by the highest or lowest price of the underlying asset over a specified period, known as the lookback period.
Expected Shortfall Calculation
Calculation ⎊ Expected Shortfall (ES) calculation is a quantitative risk metric used to estimate the potential loss of a portfolio during extreme market events.
Decentralized Finance Risks
Vulnerability ⎊ Decentralized finance protocols present unique technical vulnerabilities in their smart contract code.
Contagion Effects Modeling
Network ⎊ Contagion effects modeling analyzes the interconnectedness of financial entities within a network structure.
Volatility Term Structure
Structure ⎊ The volatility term structure is the graphical representation of implied volatility plotted against the time to expiration for a specific underlying asset or derivative.
Operational Risk Controls
Control ⎊ Operational risk controls within cryptocurrency, options trading, and financial derivatives represent the established procedures and systems designed to mitigate losses stemming from inadequate or failed internal processes, people, and systems, or from external events.
Settlement Risk Analysis
Analysis ⎊ Settlement risk analysis involves evaluating the potential for failure during the finalization of a financial transaction, specifically focusing on the possibility that one party fails to deliver on their obligation after the other party has already performed.
Greeks Calculation Methods
Calculation ⎊ Greeks calculation methods determine the first and second-order derivatives of an option's price with respect to factors like the underlying asset price (Delta), time decay (Theta), and volatility (Vega).
Quantitative Risk Modeling
Model ⎊ Quantitative risk modeling involves developing and implementing mathematical models to measure and forecast potential losses across a portfolio of assets and derivatives.