A set of probability distributions (also, a set of densities) over which the expected value of a risk instigated costs or losses in a worst-case sense is computed. A risk envelope can be interpreted as an area or space that captures uncertainty about the underlying probability distribution that generates outcomes as to a specific aspect of a firm’s operations or an investment, etc.
For a portfolio of securities, for example, risk envelope can be defined as the quantiles representing the cumulative return under specific expectations or scenarios.
Broadly speaking, risk envelope might be an imaginary space (as on probability diagram) or a physical space (a set of physical locations for business operations, etc.)
