Asymmetric Risk Exposure

What Does Asymmetric Risk Exposure Mean?

Asymmetric risk exposure refers to a financial situation where either gains or losses are uncertain due to the unpredictable value of the product involved in the transaction. This often occurs in stock trading, particularly with call options.

Insuranceopedia Explains Asymmetric Risk Exposure

Certain stocks are volatile, with their value subject to fluctuation. An investor who buys shares with an expiration date may either sell them profitably or at a loss by the time of expiration.

Insurance can also be influenced by uncertain market values. For example, an individual who purchased a property insurance policy covering 80% of their property’s value (the appropriate percentage at the time of purchase) might find that the insurer will not fully cover a loss. This is because the loss occurs when the current value of the property (used to compute the claim) has significantly increased.