Option risk: Difference between revisions
imported>Doug Williamson (Add link.) |
imported>Doug Williamson (Add link.) |
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''Banking''. | 1. ''Banking''. | ||
Banks' lending and deposit-taking relationships with their customers often give valuable options to the customers, as part of the relationship. | Banks' lending and deposit-taking relationships with their customers often give valuable options to the customers, as part of the relationship. | ||
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'Option risk' is the risk to the bank which arises from the possibility that the customers might exercise their rights of this kind, to the disadvantage of the bank. | 'Option risk' is the risk to the bank which arises from the possibility that the customers might exercise their rights of this kind, to the disadvantage of the bank. | ||
2. ''Risk management - real options.'' | |||
More broadly, the risk to any organisation or individual that another market participant may exercise a real option, causing loss or inconvenience to the organisation or individual exposed to the option risk. | |||
3. ''Risk management - financial options.'' | |||
Any risk associated with a financial option, whether as the writer or the holder of the option. | |||
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* [[Banking book]] | * [[Banking book]] | ||
* [[Basis risk]] | * [[Basis risk]] | ||
* [[IRRBB]] | * [[Interest Rate Risk in the Banking Book]] (IRRBB) | ||
* [[ | * [[Market Risk in the Banking Book]] (MRBB) | ||
* [[Option]] | |||
* [[Option holder]] | |||
* [[Option writer]] | |||
* [[Prepayment risk]] | * [[Prepayment risk]] | ||
* [[Real option]] | |||
* [[Risk management]] | |||
[[Category:The_business_context]] | |||
[[Category:Identify_and_assess_risks]] | |||
[[Category:Manage_risks]] | |||
[[Category:Risk_frameworks]] | |||
[[Category:Risk_reporting]] | |||
[[Category:Financial_products_and_markets]] | |||
Latest revision as of 12:59, 30 June 2022
1. Banking.
Banks' lending and deposit-taking relationships with their customers often give valuable options to the customers, as part of the relationship.
For example, a customer's right to repay a fixed rate mortgage early.
'Option risk' is the risk to the bank which arises from the possibility that the customers might exercise their rights of this kind, to the disadvantage of the bank.
2. Risk management - real options.
More broadly, the risk to any organisation or individual that another market participant may exercise a real option, causing loss or inconvenience to the organisation or individual exposed to the option risk.
3. Risk management - financial options.
Any risk associated with a financial option, whether as the writer or the holder of the option.
