Quantification of Risk

“Quantification of risk is the most powerful aspect of modern risk management because it brings the clarity and logical consistency of mathematics to the analysis of complex uncertainties…”.

The Book of Risk, Dan Borge

Risk means being exposed to the possibility of a bad outcome. The actual risk itself can appear in many different forms.

In a financial portfolio some of the most common types of risk are:

  • Credit risk – The risk of loss due to a debtor’s nonpayment of a loan or other line of credit.
  • Currency risk – A form of risk that arises from the change in price of one currency against another.
  • Liquidity risk – The risk that a given security or asset cannot be sold quickly enough in the market to prevent a loss or convert to cash when you need to spend it.
  • Equity risk – The risk that stock prices will change.
  • Unsystematic risk (specific  risk) – the risk that affects a very small number of assets or group of assets.
  • Systematic risk (market risk) – interest rates, recession, wars (systematic risk can be mitigated only by being hedged).

Risk management means taking deliberate action to shift the odds in your favor – increasing the odds of good outcomes and reducing odds of bad outcomes. In order to have risk management though, we need a specific and quantifiable definition of risk.

Our proprietary trading program often combines underlying securities with underlying options allowing us to shape your risk distribution in ways that are otherwise difficult or impossible. An option has a defined methodology. Combining that methodology with the underlying security gives us the ability to quantify risk to an absolute number.


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Wealth management matters can be complicated, our experts are on hand to help inform you of every aspect regarding your topic.

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