Super Finance Glossary
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Browsing by the letter "R"
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Risk
Definition: Often defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset. In context of asset pricing theory. See: Systematic risk.
Definition: Often defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset. In context of asset pricing theory. See: Systematic risk.
Risk Arbitrage
Definition: Traditionally, the simultaneous purchase of stock in a company being acquired and the sale of stock of the acquirer. Modern risk arbitrage focuses on capturing the spreads between the market value of an announced takeover target and the eventual price at which the acquirer will buy the target's shares.
Definition: Traditionally, the simultaneous purchase of stock in a company being acquired and the sale of stock of the acquirer. Modern risk arbitrage focuses on capturing the spreads between the market value of an announced takeover target and the eventual price at which the acquirer will buy the target's shares.
Risk Controlled Arbitrage
Definition: A self-funding, self-hedged series of transactions that generally use mortgage securities (MBS) as the primary assets.
Definition: A self-funding, self-hedged series of transactions that generally use mortgage securities (MBS) as the primary assets.
Risk Factor
Definition: In arbitrage pricing theory or the multibeta capital asset pricing model, the set of common factors that impact returns, e.g., market return, interest rates, inflation, or industrial production.
Definition: In arbitrage pricing theory or the multibeta capital asset pricing model, the set of common factors that impact returns, e.g., market return, interest rates, inflation, or industrial production.
Risk Indexes
Definition: Categories of risk used to calculate fundamental beta, including (1) market variability, (2) earnings variability, (3) low valuation, (4) immaturity and smallness, (5) growth orientation, and (6) financial risk.
Definition: Categories of risk used to calculate fundamental beta, including (1) market variability, (2) earnings variability, (3) low valuation, (4) immaturity and smallness, (5) growth orientation, and (6) financial risk.
Risk Lover
Definition: A person willing to accept lower expected returns on prospects with higher amounts of risk.
Definition: A person willing to accept lower expected returns on prospects with higher amounts of risk.
Risk Management
Definition: The process of identifying and evaluating risks and selecting and managing techniques to adapt to risk exposures.
Definition: The process of identifying and evaluating risks and selecting and managing techniques to adapt to risk exposures.
Risk Premium
Definition: The reward for holding the risky market portfolio rather than the risk-free asset. The spread between Treasury and non-Treasury bonds of comparable maturity.
Definition: The reward for holding the risky market portfolio rather than the risk-free asset. The spread between Treasury and non-Treasury bonds of comparable maturity.
Risk Premium Approach
Definition: A common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.
Definition: A common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.
Risk Profile
Definition: The slope of a line graphed according to the value of an underlying asset on the x-axis and the value of a position exposed to risk in the underlying asset on the y-axis. Also used with changes in value. See: Payoff profile.
Definition: The slope of a line graphed according to the value of an underlying asset on the x-axis and the value of a position exposed to risk in the underlying asset on the y-axis. Also used with changes in value. See: Payoff profile.
Risk Seeker
Definition: Investor who likes to take risk and is even willing to pay for it. Also called risk lover.
Definition: Investor who likes to take risk and is even willing to pay for it. Also called risk lover.
Risk Tolerance
Definition: An investor's ability or willingness to accept declines in the prices of investments while waiting for them to increase in value.
Definition: An investor's ability or willingness to accept declines in the prices of investments while waiting for them to increase in value.
Risk Transfer
Definition: The shifting of risk through insurance or securitization of debt because of risk aversion.
Definition: The shifting of risk through insurance or securitization of debt because of risk aversion.
Risk-adjusted Discount Rate
Definition: The rate established by adding a expected risk premium to the risk-free rate in order to determine the present value of a risky investment.
Definition: The rate established by adding a expected risk premium to the risk-free rate in order to determine the present value of a risky investment.
Risk-adjusted Profitability
Definition: A probability used to determine a "sure" expected value (sometimes called a certainty equivalent) that would be equivalent to the actual risky expected value.
Definition: A probability used to determine a "sure" expected value (sometimes called a certainty equivalent) that would be equivalent to the actual risky expected value.
Risk-adjusted Return
Definition: Often we subtract from the rate of return on an asset a rate of return from another asset that has similar risk. This gives an abnormal rate of return that shows how the asset performed over and above a benchmark asset with the same risk. We can also use the beta against the benchmark to calculate an alpha, which is also risk-adjusted performance.
Definition: Often we subtract from the rate of return on an asset a rate of return from another asset that has similar risk. This gives an abnormal rate of return that shows how the asset performed over and above a benchmark asset with the same risk. We can also use the beta against the benchmark to calculate an alpha, which is also risk-adjusted performance.
Risk-averse
Definition: Describes an investor who, when faced with two investments with the same expected return but different risks, prefers the one with the lower risk.
Definition: Describes an investor who, when faced with two investments with the same expected return but different risks, prefers the one with the lower risk.
Risk-based Capital Ratio
Definition: Bank requirement that there be a minimum ratio of estimated total capital to estimated risk-weighted asset.
Definition: Bank requirement that there be a minimum ratio of estimated total capital to estimated risk-weighted asset.
Risk-free Asset
Definition: An asset whose future normal return is known today with certainty.
Definition: An asset whose future normal return is known today with certainty.
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