Legal and regulatory risk: Sometimes governments change the law in a way that adversely affects a bank's position.
The Risk Principle
The Risk Principle is an area of law closely tied to legal causation in negligence. It provides limits on negligent liability for harm caused unforeseeably. In law, negligence is a type of tort or delict that can be either criminal or civil in nature. ...
Credit risk is the risk of loss due to a counterparty defaulting on a contract, or more generally the risk of loss due to some credit event. Traditionally this applied to bonds where debt holders were concerned that the counterparty to whom theyve made a loan might default on... Liquidity risk arises from situations in which a bank cannot sell an asset because nobody in the market wants to trade that asset. ... Market risk is the risk that the value of your investment will decrease due to moves in market factors. ... According to §644 of International Convergence of Capital Measurement and Capital Standards, known as Basel II, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. ... Volatility risk in financial markets is the likelihood of fluctuations in the exchange rate of currencies. ...
Risk is often mapped to the probability of some event which is seen as undesirable.
In information security a "risk" is defined as a function of three variables: the probability that there's a threat, the probability that there are any vulnerabilities, and the potential impact.
Risk in that case is the degree of uncertainty associated with a return on an asset.
But the lack of a legalrisk model should not be taken as a criticism that the industry has done nothing to address and reduce the legalrisks it has faced over the past decade.
The legalrisks of derivatives, therefore, are the legalrisks of a bilateral contract.
As legalrisk comes to be viewed in a quantitative paradigm, just as any firms credit risk manager can assign a credit risk rating for any counterparty, the firms legalrisk manager will be able to state a similar numeric for the legalrisk rating of the firms derivatives.
Feeds |
Contact