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imported>Doug Williamson |
imported>Doug Williamson |
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| 1. ''Banking''.
| | A clause in a loan document which links the pricing of the borrowing to the credit rating of the borrower. |
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| Banks' lending and deposit-taking relationships with their customers often give valuable options to the customers, as part of the relationship.
| | Also known as a 'ratchet'. |
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| For example, a customer's right to repay a fixed rate mortgage early.
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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.
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| 2. ''Risk management - real options.''
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| 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.
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| 3. ''Risk management - financial options.''
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| Any risk associated with a financial option, whether as the writer or the holder of the option.
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| == See also == | | == See also == |
| * [[Banking book]] | | * [[Credit rating]] |
| * [[Basis risk]] | | * [[Ratings trigger]] |
| * [[IRRBB]] | | * [[Rating grid]] |
| * [[Market Risk in the Banking Book]] (MRBB)
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| * [[Option]]
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| * [[Option writer]]
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| * [[Prepayment risk]]
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| * [[Real option]]
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| * [[Risk management]]
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| [[Category:The_business_context]] | | [[Category:Treasury_operations_infrastructure]] |
| [[Category:Identify_and_assess_risks]]
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| [[Category:Manage_risks]]
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| [[Category:Risk_frameworks]]
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| [[Category:Risk_reporting]]
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| [[Category:Financial_products_and_markets]]
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Revision as of 16:34, 25 July 2015
A clause in a loan document which links the pricing of the borrowing to the credit rating of the borrower.
Also known as a 'ratchet'.
See also