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Risk managers, typically, distinguish between market and credit risks. Credit risk is closely related to the notion of default, be it the occurrence of default or its expected occurrence. Default is defined as the event of non-respect of contractual obligations with counterparties. Market risk, on the other side, can be defined as fluctuations in value that stem from changes in relative prices, discount factors or cash flows that are not predetermined by a contract. The notion of pre-determinedness of the cash-flows is important as highlighted by Masschelein and Tsatsaronis (2009). According to this view investments in stocks imply market risks as dividends are not contractually agreed upon, while investments in bonds reflect credit risk as the coupon payments have been contractually fixed...
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