Description
Underwriters in Risk Harbor V2 underwrite every protocol in the vault. The Risk Harbor Automated Market Maker (AMM) handles pricing and ensures that Underwriters are not overexposed to any particular pool in the vault. Each vault has its own Risk Aversion parameter which governs how willing the vault is to enter leverage and take on additional risks. This vault’s risk aversion parameter is Risk-On, signaling that risk aversion is relatively low. Underwriters will earn higher yields by underwriting a larger amount of protection while taking on greater risk.
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Operating leverage signals the ratio of outstanding protection liability to underwriting capital. The higher the operating leverage ratio, the more levered the vault is. The more levered the vault is, the more likely the vault will be to be susceptible to default.\
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Risk is assessed using a combination of quantitative risk modeling, publicly available security data, systemic dependencies, and market conditions. The yield on each pool can provide an indication of how risky the protocol is by comparing the yield to quasi-risk-free rates elsewhere in the DeFi ecosystem. This rate comparison, combined with an efficient market hypothesis, allows us to price expected losses under ideal conditions. Correlated risks are assessed using quantitative risk modeling and dependency graphs.\
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**Note that additional pools are still being added to the vault.**
