What is the definition of 'catastrophic risk'?

The definition of 'catastrophic risk' pertains to situations that can lead to large-scale disasters, significantly impacting market stability or altering investor behavior. This concept encompasses potential events that can cause severe disruptions to financial systems, such as natural disasters, geopolitical crises, or major systemic failures. The significant size and impact of these risks necessitate careful consideration and management in investment strategies, as they can lead to widespread financial turmoil.

In contrast, other options define risks that are less severe or localized. Minor disruptions, regular market fluctuations, or individual investment losses do not convey the extensive impact associated with catastrophic risks. These definitions fail to capture the essence of risks that threaten overall market integrity and necessitate broader risk management practices. Understanding catastrophic risk is crucial for effective risk assessment and mitigation in financial markets.