Symmetric Risk Exposure
What Does Symmetric Risk Exposure Mean?
Symmetric risk exposure is a situation in which a risk can result in either a gain or a loss, and the potential gain and loss equal each other in value. This is in contrast to an asymmetric risk exposure in which the person faces either a greater potential loss or greater potential gain from the situation.
Insuranceopedia Explains Symmetric Risk Exposure
For example, a person makes a bet on a coin toss. If the coin lands on heads, they win $50, and if the coin lands on tails, they lose $50. Because the potential gain and loss equal each other, the person faces symmetric risk exposure.
Investors often use options to reduce their potential loss and create a more symmetric risk exposure. By buying options, they pay money to hedge their investment so there is a limit on how much they can lose. This creates more of a balance between the upside and downside of an investment. Similarly, insurance companies try to balance the risk they take on with their policies and ideally tip them in their favor through various means, such as calculating reasonable premiums, setting aside a percentage of premiums for losses and investments, purchasing reinsurance, and so on.