What is a Rocket Scientist? Rocket scientist is a term coined by traditional traders for a person with a math and statistical research background doing quantitative work in investing and finance. The term dates to the 1970’s and was used tongue-in-cheek when Wall Street firms began employing researchers without finance or trading backgrounds to use
What Is Risk Analysis? The term risk analysis refers to the assessment process that identifies the potential for any adverse events that may negatively affect organizations and the environment. Risk analysis is commonly performed by corporations (banks, construction groups, health care, etc.), governments, and nonprofits. Conducting a risk analysis can help organizations determine whether they
What Is Risk Arbitrage? Risk arbitrage, also known as merger arbitrage, is an investment strategy to profit from the narrowing of a gap of the trading price of a target’s stock and the acquirer’s valuation of that stock in an intended takeover deal. In a stock-for-stock merger, risk arbitrage involves buying the shares of the target
What Is Risk Assessment? Risk assessment is a general term used across many industries to determine the likelihood of loss on an asset, loan, or investment. Assessing risk is essential for determining how worthwhile a specific investment is and the best process(es) to mitigate risk. It presents the upside reward compared to the risk profile.
What Is Risk Averse? Risk aversion is the tendency to avoid risk. The term risk-averse describes the investor who chooses the preservation of capital over the potential for a higher-than-average return. In investing, risk equals price volatility. A volatile investment can make you rich or devour your savings. A conservative investment will grow slowly and
What Is Risk-Based Mortgage Pricing? Risk-based mortgage pricing is a practice in which lenders present loan terms and conditions to individual applicants based on the lender’s assessment of the borrower’s level of risk in regards to extending credit to that particular borrower. Key Takeaways Risk-based mortgage pricing is the practice of lenders offering loan terms
What Is a Risk-Based Capital Requirement? Risk-based capital requirement refers to a rule that establishes minimum regulatory capital for financial institutions. Risk-based capital requirements exist to protect financial firms, their investors, their clients, and the economy as a whole. These requirements ensure that each financial institution has enough capital on hand to sustain operating losses
What Is Risk-Based Deposit Insurance? Risk-based deposit insurance is insurance with premiums that reflect how prudently banks act when investing their customers’ deposits. The idea is that flat-rate deposit insurance shelters banks from their true level of risk-taking and encourages poor decision-making and moral hazard. With risk-based deposit insurance, on the other hand, banks might think twice about
What Is Risk-Based Pricing? Risk-based pricing in the credit market refers to the offering of different interest rates and loan terms to different consumers based on their creditworthiness. Risk-based pricing looks at factors associated with the ability of the borrower to pay back the loan, namely a consumer’s credit score, adverse credit history (if any)
What Is Risk Control? Risk control is the set of methods by which firms evaluate potential losses and take action to reduce or eliminate such threats. It is a technique that utilizes findings from risk assessments, which involve identifying potential risk factors in a company’s operations, such as technical and non-technical aspects of the business
