Eccentrisk

Eccentrisk is a term derived from the word eccentric, which means deviating from the norm or standard. In the context of finance, eccentrisk refers to the risk associated with the deviation of a financial instrument's price from its expected or average price. This concept is particularly relevant in the pricing and hedging of derivatives, where the payoff of the derivative is dependent on the price of an underlying asset.

Eccentrisk can be categorized into two main types: absolute eccentrisk and relative eccentrisk. Absolute eccentrisk measures the deviation of the price from a fixed level, such as the strike price of an option. Relative eccentrisk, on the other hand, measures the deviation of the price from a moving average or another reference level. Both types of eccentrisk can be used to assess the risk of a derivative position and to design hedging strategies.

Eccentrisk is a crucial concept in the field of quantitative finance, as it provides a way to quantify the risk associated with price movements and to design strategies that can mitigate this risk. It is often used in conjunction with other risk measures, such as volatility and correlation, to provide a more comprehensive assessment of the risk associated with a financial instrument.