FRM® glossary: S
21 terms beginning with S.
- Scenario analysis
- Working out the impact of a specified set of market or economic events on positions or earnings. Scenarios may be historical or hypothetical. Where it appears →
- Securitisation
- Pooling loans or other assets and selling claims on their cash flows to investors in tranches. It moves credit risk away from the originator. Where it appears →
- Seniority
- A claim's rank in the order of repayment if the borrower fails. Senior debt is repaid before subordinated debt. Where it appears →
- Settlement risk
- The risk that one party delivers its side of a trade and the other does not. It is most acute where payments in two currencies are not exchanged at the same time. Where it appears →
- Excess return over the risk-free rate divided by the standard deviation of returns. It measures reward per unit of total risk. Where it appears →
- Significance level
- The probability of rejecting a true null hypothesis that the tester is willing to accept, often 5%. It is the chance of a type I error. Where it appears →
- Skewness
- A measure of the asymmetry of a distribution. Negative skewness means a longer tail of large losses than of gains. Where it appears →
- Spot rate
- The yield on a zero-coupon bond for a given maturity, used to discount a single cash flow at that date. A set of spot rates forms the spot curve. Where it appears →
- Square root of time rule
- Converting a one-day risk figure to a longer horizon by multiplying by the square root of the number of days. It holds only if returns are independent and identically distributed. Where it appears →
- Standard deviation
- The square root of the variance, in the same units as the variable itself. It is the usual measure of volatility. Where it appears →
- Standard error
- The standard deviation of an estimator, showing how much the estimate would vary from sample to sample. It falls as the sample grows. Where it appears →
- Standard normal distribution
- The normal distribution with a mean of zero and a standard deviation of one. Any normal variable can be converted to it by subtracting the mean and dividing by the standard deviation. Where it appears →
- Standardised approach
- A regulatory method that sets capital using fixed risk weights or formulae supplied by the regulator. It is simpler than internal models. Where it appears →
- Stationarity
- A time series whose mean, variance and autocorrelations do not change over time. Many forecasting methods require it. Where it appears →
- Stress testing
- Assessing the effect on a portfolio or institution of extreme but plausible conditions. It covers what statistical models, built on normal times, tend to miss. Where it appears →
- Structural model
- A credit model that treats equity as an option on the firm's assets and default as assets falling below debt. It links default to asset value and volatility. Where it appears →
- Subadditivity
- The property that the risk of a combined portfolio is no greater than the sum of the risks of its parts. It expresses the idea that diversification should not increase risk. Where it appears →
- Survival probability
- The probability that a borrower has not defaulted by a given date. It falls over time at a rate set by the hazard rate. Where it appears →
- Swap
- An agreement to exchange cash flows over time, such as fixed for floating interest payments. Its value comes from the difference between the two legs. Where it appears →
- Systematic risk
- Risk from broad market factors that affects many assets and cannot be diversified away. It is the risk that earns a premium. Where it appears →
- Systemic risk
- The risk that distress at one institution or market spreads and threatens the financial system as a whole. It arises from interconnection and common exposures. Where it appears →
Learn these terms in context, with worked examples and questions.
See the FRM course →