Price risk and Scenario analysis: Difference between pages

Revision as of 14:07, 17 May 2017

A process of analysing possible future events by considering a number of different potential outcomes.

The different scenarios under analysis can involve changing more than one input simultaneously.

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-Price risk is the risk that the value of an investment that you own will fall.
+A process of analysing possible future events by considering a number of different potential outcomes.
-This risk illustrates how risks interact, as price risk could be caused by some or all of:
+The different scenarios under analysis can involve changing more than one input simultaneously.
-* Interest rate risk – interest rate fluctuations affect the value of instruments which pay fixed interest.
-* Credit risk – the asset is worth less because the issuer’s credit standing has weakened.
-* Market liquidity risk – the market is only willing to buy the asset at a lower price (if at all).
-Price risk shows how risks can be bundled up into a single term in some applications, and how important it is that the treasurer understands how risks originate.
-Although a single term can be useful when considering an asset or liability class, it can also confuse.
-The terminology tends to be driven by symptoms rather than causes, and a risk management strategy should really be driven by the causes.
 == See also ==
-* [[Credit risk]]
+* [[Back test]]
-* [[Market price risk]]
+* [[Model]]
-* [[Financial market price risk]]
+* [[Sensitivity analysis]]
+* [[Stress test]]
+[[Category:Corporate_financial_management]]
 [[Category:Financial_risk_management]]