Errol Danziger
Danziger Structured Finance
Introduction
“Risk” is a synonym for uncertainty or unfamiliarity. Something that is unfamiliar or unknown is more risky than something that is familiar.
All investments are based on a forecast of some kind, that is, on some assumption about the future. Every investment has uncertainty built into it and every investor is exposed to risks of various kinds. Investment return is therefore uncertain by definition and is thus the inevitable by-product of taking risk.
There are three categories of investment risk or financial risk: market risk, credit risk, and operational risk. Market risk is the risk of incurring losses due to changes in market factors—prices, volatilities, ...
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