imported>Doug Williamson |
imported>Doug Williamson |
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| ''Risk management.''
| | To be risk averse means to prefer a lower level of risk, for any given level of return or cost. |
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| | Therefore, for example, risk averse investors will always require a higher expected rate of return to compensate for any higher levels of risk which they accept. |
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| Strictly, risk appetite means the amount and types of risk that an organisation is willing to accept in pursuit of value, improved financial performance or of other benefits, with management responsible for setting boundaries or parameters for risk taking.
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| | The assumption that market participants are rational and risk averse is one of the underpinnings of the efficient markets hypothesis. |
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| :'''''Risk tolerance''''' represents the amount of risk that the firm can actually bear.
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| :'''''Risk appetite''''' is the amount of risk that is actually desired. This might be seen in relation to the return sought by investors. Reward is normally only gained by taking risks, so limiting risk will limit reward.
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| Risk appetite will normally be less than - or sometimes equal to - the maximum risk tolerance.
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| Any risk responses should be designed such that the 'net' (residual) risk after considering controls does not exceed these boundaries.
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| 'Conservative' strategies are those in which only the lowest levels of risk are acceptable.
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| More 'aggressive' approaches to risk mean that higher levels of risk may be acceptable, if they are appropriately rewarded.
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| The risk appetite will be determined within the maximum risk capacity, in order to achieve the strategic objectives and business plan.
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| The term 'risk appetite' is also sometimes used more loosely, interchangeably with risk ''attitude'', risk ''capacity'' or risk ''tolerance''.
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| == See also == | | == See also == |
| * [[Conservative]]
| | *[[Risk]] |
| * [[Enterprise risk management]]
| | *[[Risk appetite]] |
| * [[Guide to risk management]]
| | *[[Efficient markets hypothesis]] |
| * [[Prudence]]
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| * [[RAF]]
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| * [[Rewarded risk]]
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| * [[Risk averse]] | |
| * [[Risk capacity]] | |
| * [[Risk management]]
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| * [[Risk policy]]
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| * [[Risk register]] | |
| * [[Risk tolerance]]
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| ===Other links===
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| [http://www.theirm.org/knowledge-and-resources/thought-leadership/risk-appetite-and-tolerance/ Risk appetite and risk tolerance: Practical guidance], www.theirm.org
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| [[Category:Corporate_finance]] | | [[Category:Corporate_Strategy]] |
| [[Category:Financial_risk_management]] | | [[Category:Managing_Risk]] |
To be risk averse means to prefer a lower level of risk, for any given level of return or cost.
Therefore, for example, risk averse investors will always require a higher expected rate of return to compensate for any higher levels of risk which they accept.
The assumption that market participants are rational and risk averse is one of the underpinnings of the efficient markets hypothesis.
See also
