Risk measure

Financial institutions, such as banks or insurance companies are required to hold cash reserves as a cushion against default. A Risk measure is used to determine the amount of cash that is required to make the risk acceptable to the regulator.

Examples
Well-known examples are Value at risk, Expected shortfall. In recent years the attention has turned towards coherent measures of risk.

Mathematically
A risk measure is defined as a mapping from a set of random variables to the real numbers. This set of random variables represents the risk at hand. The common notation for a risk measure associated with a random variable $$X$$ is $$\rho[X]$$.

Related pages

 * RiskMetrics