Quick Q - Residual Risk

What is this? In relation to unsystematic, systematic risk?


any ideas? I’ve read this in my notes but can’t find a definition.

Settlement risk and operational risk are residual risk I suppose, read somewhere

residual risk means any risk that cannot be explained in systematic way , so it is the undiversified component of total risk

Seem to remember reading that this is counterparty risk (aka Lehman!) and regulatory risk (getting screwed over with taxes).

agree wih Kiakaha, it’s in the Low basis stock reading.

Personally, I always though of residual risks as non-financial risks. Therefore, I think it would be strange to see them questioned in the context of systematic/unsystematic. I haven’t seen any questions like that in the practice tests. Have you?

Anyway’s, here’s a quick run-down:

Financial risks: Market risk, Liquidity risk, Credit risk, Sovereign risk

Nonfinancial risks: Settlement risk, Operations risk, Model risk, Regulatory risk, Sovereign risk, Other