The relationship between risk and return is a fundamental concept in finance. Risk includes the possibility that an investor or trader may lose some or all of its original investment. Risk management is the process of identification, analysis, and either acceptance or mitigation of uncertainty in investment decision making. In addition, risk management may be viewed as the immunization of a portfolio against risk.
As we will discuss in Section 5.4, the Greeks measure the sensitivity of the value of a portfolio to small changes in various parameters. These Greeks
Note: We will define a hedge in Section 5.1.
Participants in the energy markets perform one or more of the following functions: