What is Haircut in FRM Part 1?

A percentage reduction applied to collateral market value when determining how much exposure it can secure. Haircuts protect against price moves and liquidation costs during the margin period of risk.

Haircut

FRM Part 1 glossary · Quantitative Analysis

Definition

A percentage reduction applied to collateral market value when determining how much exposure it can secure.

Haircut in plain English

Haircuts protect against price moves and liquidation costs during the margin period of risk.

Learn these first

Liquidity risk
Funding liquidity risk

Related FRM Part 1 terms

Bayes' theorem
Bootstrapping (term structure)
Central limit theorem
Copula
Exponentially weighted moving average (EWMA)
Generalized Autoregressive Conditional Heteroskedasticity (GARCH)
Heteroskedasticity
Monte Carlo simulation
Ordinary least squares (OLS)
p-value

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