0
$\begingroup$

I work in finance but do not have any formal education in the subject (I do have a PhD, but not in finance). I've picked up a lot of the jargon but there's one thing that I haven't figured out, and it seems too basic to ask. Hence I ask here.

What do people mean when they say they are "modeling risk" or "risk numbers?" The term "risk" here seems to have a very specific meaning, and it doesn't seem to coincide with the way the word is used in everyday speech. I'm not sure if it has anything to do with the risk-neutral measure, which is something I do understand.

Improve this question
$\endgroup$

1 Answer 1

Reset to default
2
$\begingroup$

Very hard to tell from the given context but I would assume that "risk numbers" refers to the risk of a position (e.g. trading desk) which is typically measured in terms of a VaR (value-at-risk) or a similar measure (ES - expected shortfall).

"Modeling risk" is the task of identifying your sources of risk (risk types like e.g. interest rate risk, volatility risk) and then choosing an adequate model (e.g. VaR using delta-normal approach) in order to calculate the aforementioned risk numbers.

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.