The most damaging risks are often the ones volatility cannot show.
| Concept | Explanation | |---|---| | Risk | Possible outcomes can be estimated with some historical or model-based structure. | | Uncertainty | Important outcomes or probabilities are difficult to estimate. | | Volatility | Observed variability of returns. | | Permanent loss | Capital is impaired and does not recover. | | Model risk | The analytical model is incomplete or wrong. | | Event risk | A discrete development causes a large move. |
Volatility is visible and measurable, but the most damaging risks are often hidden: fraud, leverage, liquidity failure, dilution, technological failure, or a broken investment thesis.