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.
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;
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.