Option risk definition

Option risk is defined as the exposure to loss due to the uncertainty of cash flows resulting from another party having the right but not the obligation to alter the level and/or timing of cash flows of an asset, liability or off-balance sheet instrument. The ability of a third party to affect the cash flows of the Company through the exercise of an option or other right written by the Company may pose risks for the Company. Option risks may exist with respect to options and other derivative instruments written by the Company.
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Option risk means the risk arising from options (embedded and explicit), where the credit institution or its customer can alter the level and timing of their cash flows, namely the risk arising from interest rate sensitive instruments where the holder will almost certainly exercise the option if it is in their financial interest to do so and the risk arising from flexibility embedded implicitly or within the terms of interest rate sensitive instruments, such that changes in interest rates may affect a change in the behaviour of the client;
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Examples of Option risk in a sentence

  • Option risk refers to the risk of fluctuations in the value of options embedded in the Company’s investment portfolios or liabilities.

  • The Parties intend that a County Certificate of Acceptance will be executed for each Solar Energy System as soon as the installation is complete and County is receiving the benefit of the services described in Section 3.4. Both before and after Acceptance, but prior to exercise of the Early Buyout Option, risk of loss or damage shall remain with ARI.

Related to Option risk

  • Option Right means the right to purchase Common Shares upon exercise of an option granted pursuant to Section 4 of this Plan.

  • Option means a stock option granted pursuant to the Plan.

  • ISO means any Option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code.

  • Tandem Appreciation Right means an Appreciation Right granted pursuant to Section 5 of this Plan that is granted in tandem with an Option Right.

  • Stock Option means a contractual right granted to an Eligible Person under Section 6 hereof to purchase shares of Common Stock at such time and price, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.