Risk specific to one asset or firm. It diversifies away in a large portfolio, so it earns no premium. Where it appears →
Implied volatility
The volatility that, put into an option pricing model, reproduces the option's market price. It is the market's forward-looking estimate, not a historical one. Where it appears →
Implied volatility smile
The pattern in which options with different strikes have different implied volatilities. It shows that the market does not price returns as lognormal. Where it appears →
Information ratio
Active return relative to a benchmark divided by tracking error. It measures how consistently a manager adds value per unit of active risk. Where it appears →
Initial margin
Collateral posted at the start of a trade to cover potential losses between the last margin payment and close-out. It is held in addition to variation margin. Where it appears →
Interest rate risk
The risk that changes in interest rates reduce the value of positions or earnings. Duration and convexity measure its effect on bond prices. Where it appears →
Internal audit
An independent function that tests whether risk management and controls work and reports to the board. It is the third line of defence. Where it appears →
Internal ratings-based approach
A method allowing banks to use their own estimates of default probability, and in some cases loss given default and exposure, to compute credit capital. Supervisors must approve it. Where it appears →
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