Given easy access to capital markets, issuers typically call issues on the first call date, so extension risk
is heavily discounted, offering relative value to investors.
The possibility of extension risk
has also been factored into the 'S2' Fund Market Risk Sensitivity Rating.
So mortgage securities that are purchased today, if rates were to rise, would exhibit extension risk
, and what you thought was a four-year security might wind up being a seven-year security.
"You manage life extension risk
by writing better policies.
These partnerships can leverage some of the available grant programs--such as value added producer grants, and the USDA Specialty Crop Block Grants to the states the Sustainable Agriculture Research and Education and Extension Risk
Management Education grants program--to enhance the development of these local food marketing outlets for small farmers.
This in turn can prevent refinancing and therefore precipitate the very extension risk
Developing a functional portfolio that complements your core business entails looking at duration risk, call risk, liquidity risk extension risk
just to name a few basic metrics.
At the same time, MARC also sees lingering extension risk
with respect to the planned early redemption of KMCOB's 2018 sukuk tranche notwithstanding the new timeline of December 31, 2013 for the completion of the West African asset disposals.
Ths is because of the extension risk
, which is defined as the extension of the mortgage terms because of the past due status of the loan, and the contraction risk, which is defined as the shrinkage of the mortgage terms because of the early payment, or prepayment as most mortgage contracts do not include the prepayment penalty.
Among the risks that regulators cited during the discussion are: extension risk
in which the security might not mature at the time it was expected to mature, and that the security would be more volatile than was incorporated in any of its available ratings.
Other risks to consider are reinvestment risk and extension risk
. Reinvestment risk is the risk that, in a falling interest rate environment, an investor will receive principal and interest payments earlier than expected and be forced to reinvest at a lower interest rate.