FRM® glossary: C

35 terms beginning with C.

A BCD E F G H I K L M N O P Q R S T U V W Y Z

Capital conservation buffer: An extra layer of common equity above the minimum that a bank must hold in good times. Falling into it limits dividends and bonuses. Where it appears →
CAPM: A model in which an asset's expected return is the risk-free rate plus beta times the market risk premium. Only market exposure is rewarded. Where it appears →
Central bank: The public body that sets monetary policy, supplies reserves to banks and often supervises them. Its actions move rates and liquidity. Where it appears →
Clearing house: A body that becomes buyer to every seller and seller to every buyer, guaranteeing performance. It manages risk through margin and a default fund. Where it appears →
Close-out: The termination and valuation of all trades with a defaulting party. The net amount due is then settled. Where it appears →
Coherent risk measure: A risk measure that satisfies monotonicity, translation invariance, positive homogeneity and subadditivity. VaR fails subadditivity in general; expected shortfall meets all four. Where it appears →
Collateral: Assets pledged to secure an obligation, which the lender may keep or sell if the borrower defaults. It reduces loss given default. Where it appears →
Collateralised debt obligation: A securitisation of a pool of debt, such as bonds or loans, into tranches of differing seniority. Its risk depends heavily on the correlation of the underlying defaults. Where it appears →
Common equity tier 1: The highest quality of bank capital, mainly ordinary shares and retained earnings. Basel III sets the largest minimum on it. Where it appears →
Compounding: Earning interest on previously earned interest. With continuous compounding, a sum grows by the exponential of rate times time. Where it appears →
Concentration risk: The risk from having large exposure to one name, sector, region or risk factor. A single event can then cause a disproportionate loss. Where it appears →
Conditional probability: The probability of an event given that another event has occurred. Bayes' theorem reverses the conditioning. Where it appears →
Confidence interval: A range around an estimate that would contain the true value a stated share of the time across repeated samples. A wider interval comes with higher confidence. Where it appears →
Confidence level: The probability, such as 95% or 99%, that a loss or estimate stays within a stated limit. A higher level pushes the cut-off further into the tail. Where it appears →
Contingency funding plan: A plan setting out how a firm would raise cash in a liquidity crisis, with triggers and responsibilities. It lists sources and the order to use them. Where it appears →
Convenience yield: The benefit of holding a physical commodity rather than a contract on it. It reduces the forward price relative to the cost-of-carry value. Where it appears →
Convexity: The curvature of the price-yield relationship, which refines the duration estimate for large yield moves. Positive convexity benefits the holder. Where it appears →
Copula: A function that joins separate marginal distributions into a joint distribution, isolating the dependence structure. It lets the shape of each variable and their dependence be modelled separately. Where it appears →
Correlation: A standardised measure of linear association between two variables, between minus one and one. It is covariance divided by the product of the two standard deviations. Where it appears →
Cost of carry: The net cost of holding an asset until a future date, including financing and storage less any income. It links the spot price to the forward price. Where it appears →
Countercyclical capital buffer: An additional capital requirement that supervisors raise when credit growth is excessive and release in a downturn. It counters procyclicality. Where it appears →
Counterparty credit risk: The risk that the other party to a derivative or financing transaction defaults before the final settlement, when the position has value to you. Exposure changes as markets move. Where it appears →
Covariance: A measure of how two variables move together, equal to the average product of their deviations from their means. Its size depends on the units of the variables. Where it appears →
Covariance matrix: A table of the variances and covariances of a set of variables. Portfolio variance is computed from it and the position weights. Where it appears →
Covenant: A condition in a loan agreement that the borrower must meet or limits the borrower must keep to. A breach lets the lender act. Where it appears →
Credit default swap: A contract in which the buyer pays a periodic fee and receives compensation if a named borrower defaults. It transfers credit risk without transferring the loan. Where it appears →
Credit rating: An assessment of a borrower's creditworthiness, shown on a letter scale, from an agency or the lender's own system. Ratings migrate over time. Where it appears →
Credit risk: The risk of loss because a borrower or counterparty fails to meet its obligations. It covers default and deterioration in credit quality. Where it appears →
Credit scoring: Ranking borrowers by a statistical score based on their characteristics. Lenders use it to accept, price and monitor loans. Where it appears →
Credit spread: The extra yield over a risk-free or benchmark rate that compensates for credit risk. It widens when default risk or risk aversion rises. Where it appears →
Credit support annex: The part of a derivatives agreement that sets rules for collateral, including thresholds, minimum transfer amounts and eligible assets. It controls how exposure is secured. Where it appears →
Credit valuation adjustment: The market value of counterparty credit risk on a derivative, deducted from its risk-free value. It is roughly the expected exposure times the default probability times the loss given default. Where it appears →
Credit VaR: The loss on a credit portfolio not expected to be exceeded at a given confidence level over a horizon. It captures default correlation and concentration. Where it appears →
Critical value: The threshold that a test statistic must pass for the null hypothesis to be rejected. It depends on the significance level and the distribution used. Where it appears →
Cyber risk: The risk of loss from attacks on, or failures of, information systems. It includes data breaches, ransomware and loss of availability. Where it appears →

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