Risk

RECENT NEWS
Mondo Visione  22 min ago  Comment 
Information Mosaic (IM), leaders in global post-trade securities processing have won the Best Operational Risk Management Solution which will be presented to IM at the annual SecOps USA conference to be held  in New York City on the 1st and 2nd...
Insurance Journal  2 hrs ago  Comment 
Scientists say the earthquake fault that runs through the coastal city of Ventura, Calif. can produce strong shaking and dangerous tsunamis, prompting state officials to study whether to revise hazard maps. The Los Angeles Times reported that new...
Forbes  3 hrs ago  Comment 
You might have thought scientists were done studying the MMR (measles mumps rubella) vaccine and autism. After all, numerous studies show no link between the two. But the anti-vaccine advocates who cling to the falsehood that any link might exist...
Insurance Journal  4 hrs ago  Comment 
U.S insured property values as of 2014 exceed $90 trillion, but the bulk of that is increasingly concentrated in vulnerable coastal areas. With that in mind, new risk metrics could better help monitor exposures, Karen Clark & Co. concludes in a...
Mondo Visione  Apr 20  Comment 
MIAX has filed for immediate effectiveness with the Securities and Exchange Commission to modify Exchange Rule 500, Access to and Conduct on the Exchange, to authorize the Exchange to share any Member-designated risk settings in the MIAX System...
MedPage Today  Apr 20  Comment 
(MedPage Today) -- Patient-level meta-analysis suggests no coronary event or mortality risk.
MedPage Today  Apr 20  Comment 
(MedPage Today) -- Maternal viral load, mother's age are additional risk factors.
Insurance Journal  Apr 20  Comment 
Dave Wagner has joined Southwest Risk LP in Dallas to serve as relationship manager. Wagner began his insurance career in 1987 in western New York and has 28 years of marketing experience. Most recently, he was with the Independent Agents...




 

Risk in economic terms indicates the probability of the occurance of a specific event, which would lead to damage or loss (p.e. the likelihood of losing ship and freight to a hurricane). In distinction to risk, chance indicates the possibility of a positive outcome.

Investments include both risk and chance. This is the so called Risk-Return Tradeoff: low levels of uncertainty offer low potential returns but also low potential losses, whereas high levels of uncertainty offer high potential returns but also high potential losses. Another way many investors quantify and calculate risk is in terms of the standard deviation of returns. This is because all else being equal, risk averse investors prefer returns that are less volatile and more predictable.

Companies try to identify, analyse and control risk through concepts of risk management.

Risks of Bond Investing

Bonds carry credit risk ("will I get my money back?"), prepayment risk, liquidity risk and interest-rate risk.

  • Many bonds give the bond issuer the right to repay the bond early -- which happens more often when rates are low, in other words, just when you don't want your money back. This is prepayment risk.
  • Liquidity risk is the risk that you won't find a good price for your bond when you want to sell it -- because there are so many more bond issuers than stock issuers, and because bonds are not exchange-traded, there may not be a willing buyer.
  • Interest-rate risk is the opposite of prepayment risk: when rates go up, the value of your bond will drop (it drops more, the further away it is from maturity). If your circumstances change and you need to sell the bond before maturity, you can lose capital that you would otherwise receive, if you held the bond to maturity.
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