FRM® glossary: E
10 terms beginning with E.
- Economic capital
- The capital a firm judges it needs to absorb unexpected losses at a chosen confidence level, set by its own risk estimates. It differs from the capital regulators require. Where it appears →
- Enterprise risk management
- Managing all of an organisation's risks together rather than in separate silos. It links risk-taking to strategy and capital. Where it appears →
- EWMA
- A volatility estimate that gives more weight to recent observations, with weights decaying geometrically. A single decay factor controls how quickly old data fade. Where it appears →
- Exception
- A day on which the actual loss exceeds the VaR forecast. The number of exceptions over a period is what a backtest counts. Where it appears →
- Exchange rate risk
- The risk of loss from changes in exchange rates on assets, liabilities or earnings denominated in other currencies. It can be hedged with forwards and swaps. Where it appears →
- Expected exposure
- The average of positive exposure to a counterparty at a future date. Its average over time is used for pricing and capital. Where it appears →
- Expected loss
- The average credit loss expected over a period, equal to probability of default times loss given default times exposure. It is a cost of doing business, covered by pricing and provisions. Where it appears →
- Expected shortfall
- The average loss on the days when the loss is beyond the VaR threshold. It looks into the tail that VaR ignores and is a coherent risk measure. Where it appears →
- Exposure at default
- The amount owed at the moment of default, including any drawn commitments. For credit lines it is usually higher than the amount currently drawn. Where it appears →
- Extreme value theory
- A body of statistics that models only the tail of a distribution. It is used to estimate rare losses beyond what the data directly cover. Where it appears →
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