A type of risk that reflects any potential losses that may arise, in both on (on-BS) and off-balance sheet (off-BS) positions, from changes in market prices. In addition to price movement, other factors that contribute to price risk include earnings volatility, underperforming management, among others. For a particular asset (e.g., a security, item of inventory, investment, etc.), price risk reflects any potential decrease/ drop in the value of the asset over time.
It may also involve the risk that the fair value of a financial instrument will fluctuate due to changes in market prices.
For example, price risk may refer to the risk of potential loss in the value of a security due to a drop or potential drop in its market price. Price risk results from a host of factors such as earnings volatility, actual or prospect, in addition to other firm-specific factors (bad management), and industry-specific factors such as structural changes in prices, etc.
