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Definition of Call risk
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
The sum of cash, accounts receivable, and short-term marketable
The amount of total risk that can be eliminated by diversification by
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.
The risk that the cash flow of an issuer will be impaired because of adverse economic
An option that gives the right to buy the underlying futures contract.
a. An option to buy a certain quantity of a stock or commodity for a
To exercise a call option.
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An option contract that gives its holder the right (but not the obligation) to purchase a specified
A contract that gives the holder the right to buy an asset for a
Right to buy an asset at a specified exercise price on or before the exercise date.
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
A feature of some callable bonds that establishes an initial period when the bonds may not be
An embedded option granting a bond issuer the right to buy back all or part of the issue prior
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
A bond that allows the issuer to buy back the bond at a
Bond that may be repurchased by the issuer before maturity at specified call price.
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
See asset-specific risk
The risk that a project will not be brought into operation successfully.
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
A short call option position in which the writer owns the number of shares of the underlying
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Financial and moral risk that an obligation will not be paid and a loss will result.
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
A provision that prohibits the company from calling the bond before a certain date. During this
Related: unsystematic risk.
In project financing, the risk that the project's output will not be salable at a price that will
when the incremental revenue from the sale of reworked defective units is greater than
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
The risk that the ability of an issuer to make interest and principal payments will change because
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
risk to shareholders resulting from the use of debt.
See:diversifiable risk or unsystematic risk.
With CMOs, the start of the cash flow cycle for the cash flow window.
Flat price risk
Taking a position either long or short that does not involve spreading.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Related: interest rate risk
risk that arises when an issuer has policies concentrated within certain geographic areas,
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
High-Risk Small Business
Firm viewed as being particularly subject to risk from an investors perspective.
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
The right of the homeowner to prepay, or call, the mortgage at any time.
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is
judgmental method (of risk adjustment)
an informal method of adjusting for risk that allows the decision maker
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
A demand for additional funds because of adverse price movement. Maintenance margin
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
risk that cannot be diversified away. Related: systematic risk
The amount of total risk that cannot be eliminated by portfolio
Economywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk.
The part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.
market risk premium
risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.
The risk associated with taking applications from prospective mortgage borrowers
net income (also called the bottom line, earnings, net earnings, and net
risk that cannot be eliminated by diversification.
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
operating risk (business risk)
risk in firm’s operating income.
Overnight delivery risk
A risk brought about because differences in time zones between settlement centers
Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of
The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of
A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
Provisional call feature
A feature in a convertible issue that allows the issuer to call the issue during the noncall
Related: inflation risk
Put-call parity relationship
The relationship between the price of a put and the price of a call on the same
In banking, the risk that profits may decline or losses occur because a rise in interest rates forces up
Regulatory pricing risk
risk that arises when regulators restrict the premium rates that insurance companies
The risk that proceeds received in the future will have to be reinvested at a lower potential
Related: unsystematic risk
Reverse price risk
A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an
Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of
uncertainty; it reflects the possibility of differences between
The degree of uncertainty associated with the return on an asset.
A state in which the number of possible future events exceeds the number of events that will actually occur, and some measure of probability can be attached to them.
risk measures the possibility that your investment may lose or gain value as compared to the expected rate of return. risk is different from uncertainty, which is not measurable.
Calculated chance of loss.
return Return earned on an asset normalized for the amount of risk associated with that asset.
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