FRM® glossary: B
11 terms beginning with B.
- Backtesting
- Comparing a model's predicted losses with actual outcomes to count how often the loss exceeded the forecast. Too many exceptions suggest the model understates risk. Where it appears →
- Backwardation
- A market in which forward prices are lower than the spot price. It often reflects a high convenience yield. Where it appears →
- Banking book
- Positions held to maturity or for the long term, usually loans and deposits, valued on accrual. They attract credit and interest rate risk capital. Where it appears →
- Basel Committee
- The international committee of banking supervisors that sets prudential standards for banks. Its standards are not binding until countries adopt them. Where it appears →
- Basel III
- The international framework, drawn up after the 2007 to 2009 crisis, that raised bank capital and introduced liquidity and leverage requirements. It is applied through national rules. Where it appears →
- Basis risk
- The risk that a hedge and the exposure it covers do not move exactly together. It is the residual risk left after hedging. Where it appears →
- Beta
- A measure of an asset's sensitivity to market returns, equal to its covariance with the market divided by the market variance. A beta above one means the asset amplifies market moves. Where it appears →
- Bid-ask spread
- The difference between the price at which a dealer will buy and sell. A wider spread signals a costlier, less liquid market. Where it appears →
- Binomial tree
- A model that steps an asset price up or down at each of several periods, then values an option by working back from expiry. It can handle early exercise. Where it appears →
- Black-Scholes-Merton model
- A model that prices European options on an asset with lognormal returns and constant volatility. Price depends on the spot, strike, time, rate, dividends and volatility. Where it appears →
- Business continuity
- Planning that allows critical activities to continue, or be quickly restored, after a disruption. It is tested through exercises. Where it appears →
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