Mismatch Risk
1) A category of risk that refers to the possibility that a swap dealer will be unable to find a suitable counterparty for a swap transaction for which it is acting as an intermediary.
2) The risk that an investor has chosen investments that are not suitable for his or her circumstances. Investopedia Says:
1) A number of different factors can make it difficult for a swap bank to find a counterparty for a swap transaction. For example, wanting to participate in a swap with a very large notional principal may limit the number of available counterparties.
2) A mismatch between investment type and investment horizon can be a source of mismatch risk. For example, mismatch risk would exist in a situation where an investor with a short investment horizon (such as one who is near retirement) invests heavily in speculative hi-tech stock. Typically, investors with short investment horizons should focus on less speculative investments such as fixed income securities and blue chip equities. Related Terms:
Financial Intermediary
Market Maker
Risk
Swap
Swap Dealer
Time Horizon |