VARIOUS DEFINITIONS FOR RISK
Risk: the potential that a certain activity (or inaction) will lead to an undesirable outcome.
ISO31000: (International Organization for Standardization) the effect of uncertainty on outcomes.
The Open Group: probability of frequency and probability of magnitude of future loss
Behavioral Finance: Degree of uncertainty associated with the return on an asset
Other kinds of risk:
Downside Risk: Risk of a decline in market price (as opposed to upside & downside risk)
Inflation Risk: Risk of decline in real value (nominal value less inflation)
Default Risk: Risk that the borrower will not make payments as promised
Investment Risk: Risk related to an investment
Commodity Risk / Fuel Price Risk: Risk that cash flows are disrupted by changes in commodity prices
Country Risk/Political Risk: Risk of policy changes, civil disruptions, etc.
Client Risk/Inherent Risk: Risk that client materially misleads auditors/financial statements
Audit Risk = Inherent Risk * Control Risk * Detection Risk
Security Risk / IT Risk: Risk that security or information systems are compromised
Legal Risk: Risk that legislation changes or parties do not have legal right to enter contracts
Settlement Risk / Counter-Party Risk: Risk of default on one’s obligation due to someone else’s default
Interest Rate Risk: Risk that interest rates or implied volatility changes?
Liquidity Risk: Risk that the asset cannot be traded timely
Volatility Risk: Risk that price of a derivative changes due to volatility in the underlying asset
Refinancing Risk / Funding Risk: Risk that future obligations cannot be financed
Operational Risk / Business Risk: Risk that business cash flows are not as expected
Reinvestment Risk: Risk that investment rate may not be renewable
Reputational Risk: Risk that an event damages the reputation of a company
Sampling Risk: Risk that conclusion is based on a sample not representative of the population
Systemic Risk: Risk that investment fails due to macroeconomic or system-wide decline
Non-Systemic Risk: Risk associated with a specific investment (as opposed to systemic risk)
Value At Risk: Amount of an investment that may be lost if investment fails
Profit Risk / Concentration Risk: Risk of an uneven distribution of profit factors or borrowers
Market Risk / Equity Risk: Risk that equity prices fluctuate (standard deviation of price)
© Daniel Dower, 2012