Market Risk
A short-term agreement where a seller transfers a security to a buyer in exchange for cash, with the agreement to buy back the security at a later date for a higher price.
Repurchase Agreement (REPO)
Financial product agreement that the seller of the product will compensate the buyer in the event of a debt default (by the debtor) or other credit event.
Credit Default Swap (CDS)
______ occurs when brokers execute their own client buy orders against their own client sell orders, representing both sides of a trade and without routing them to central markets.
Internalization
An international treaty on climate change that was signed in 2016. The treaty covers climate change mitigation, adaptation, and finance.
The Paris Agreement
Forecasting method named after the popular gambling destination in Monaco, since chance and random outcomes are central to the modeling technique, much as they are to games like roulette, dice, and slot machines.
Monte Carlo Simulation
A loan agreement between a borrower and a lender that gives the borrower the ability to borrow money over a period of time without having to reapply for a new loan each time.
Credit Facility
A hypothetical stress scenario where adverse news on the firm negatively impacts the firm from a liquidity point of view
Idiosyncratic Scenario
The potential costs that society faces when transitioning to a low-carbon economy to reduce greenhouse gas emissions.
Transition Risk
Way of testing if a model’s predictions are in line with realized data.
Backtesting
A measured change to the market value of derivative instruments to account for counterparty credit risk. It represents the discount to the standard derivative value that a buyer would offer after taking into account the possibility of a counterparty’s default.
Credit Valuation Adjustment (CVA)
Liquidity scenario prescribed by the Federal Reserve that requires banks to measure the stand-alone liquidity position of each material entity and ensure that liquidity is readily available to meet any deficits. The typical time stress time horizon is set at 30 days.
Resolution Liquidity Adequacy and Positioning (RLAP)
This bank is targeting $2.5T by the end of 2030 to advance solutions that help address climate change and contribute to sustainable development.
J.P Morgan
A method for measuring a portfolio's risk that takes into account extreme tail risk over a long period of time. It's a forward-looking approach that uses Monte Carlo simulations to identify the most adverse outcomes and the scenarios that caused them.
Stress VaR
A standard document regularly used to govern over-the-counter derivatives transactions. The agreement outlines the terms to be applied to a derivatives transaction between two parties, typically a derivatives dealer and a counterparty.
ISDA Master Agreement
Regulatory filing intended to provide detailed information about a member’s liquidity profile.
Supplemental Liquidty Schedule (SLS)
The set of practices, standards, norms, regulations and products that pursue financial returns alongside environmental and/or social objectives.
Sustainable Finance
Number of backtesting exceptions to push the multiplication factor from the standard 3.0 to 3.4.
Five
This mathematical model estimates the theoretical value of derivatives based on other investment instruments, taking into account the impact of time and other risk factors. Developed in 1973, it is still regarded as one of the best ways for pricing an options contract.
Black-Scholes Model
The minimum amount of highly liquid assets that financial institutions are required to hold by international regulations.
Liquidity Coverage Ratio (LCR)
Internationally recognized climate scenario provider
Network for Greening the Financial System (NGFS)