Man who is jumping
Didier Darcet
2 March 2019

Two Meanings of Risk

Risk is simply the likelihood of an adverse event. This is common sense as well as what statistical finance has calculated since Louis Bachelier introduced the concept in 1900. But are we sure this is a proper way to quantify risk for, say, a portfolio manager? At the end of the day, risk is more than the pain associated with a temporary loss. Risk is the amount of money lost forever!