A type of investment risk that arises from spikes in market volatility or substantial market swings, consequently affecting specific types of investments, particularly those embedded with a large degree of leverage. Examples of such investments include hedged investments, derivatives, highly leveraged instrument, margin accounts, etc.
For equities (e.g., a stock), a gap risk results from substantial changes in market prices typically due to news or developments after trading hours (taking place at times other than normal market hours). At a broader economic level, a gap risk occurs or coincides with currency and stock market crisis.
This risk is also known as an market event risk or a jump risk.
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