Replacement Risk
Definition of 'Replacement Risk'The risk that a contract holder will know that the counterparty will be unable to meet the terms of a contract, creating the need for a replacement contract.Also known as "replacement-cost risk". |
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Investopedia explains 'Replacement Risk'For example, if a counterparty in an agreement fails to fulfill its contractual obligation, you will have to replace whatever it was the counterparty was supposed to deliver (e.g. an interest rate, a stock, a commodity, etc). Of course, there is a good chance that you won't be able to do this at the same price because the market will have moved since the contract was created. |
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