> For the complete documentation index, see [llms.txt](https://docs.firelight.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.firelight.finance/risk-and-pricing-model.md).

# Risk and Pricing Model

This section is the reference material for Firelight's underwriting methodology. It complements the conceptual material in [Core Concepts](/core-concepts.md) with more detail on how Firelight monitors risk components, how that monitoring drives pricing, and how the protocol manages portfolio-level capital adequacy.

The methodology is built from three ingredients:

1. **What is being covered.** A vault's coverage is decomposed into the strategies that sit inside it. Each one carries a covered exposure amount and a defined risk treatment (see [Economic Model](/risk-and-pricing-model/economic-model.md) for how this decomposition feeds pricing).
2. **The economic view.** Market-driven risk, monitored in real time and split into a near-term bad-debt view and a structural graph overlay.
3. **The technical view.** Code - and infrastructure-level risk, scored separately and translated into its own portfolio-level expected-loss view.

The economic and technical views are kept independent so that markets that look healthy on one side but fragile on the other are still priced correctly. A **composite risk score** blends the two for display and ranking, but pricing uses the underlying split.

The framing throughout is deliberately high-level: Firelight prices coverage by monitoring a set of risk components in real time, not by publishing fixed formulas. Specific weights, severity assumptions, and limits are under active calibration, and published values in the Cover Registry take precedence over the descriptions here.

### What you'll find here

* [Technical Scoring](/risk-and-pricing-model/technical-scoring.md) covers the code- and infrastructure-level signals Firelight monitors and how they feed the technical view of a market.
* [Economic Model](/risk-and-pricing-model/economic-model.md) covers the two-component economic view, bad-debt risk plus the structural graph overlay, and the strategy-row decomposition that connects coverage to monitored risk.
* [Capital Adequacy](/risk-and-pricing-model/capital-adequacy.md) describes the leverage framework, the Diversification Factor, and the CAR floor that keeps the protocol solvent under stress.

### How this section relates to the rest

| Where referenced                                                                             | What it's used for                                                    |
| -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- |
| [Risk Pricing Framework](/core-concepts/risk-pricing-framework.md)                           | High-level introduction to the two views and the monitored components |
| [Pricing](/for-program-operators/pricing.md)                                                 | How monitored risk translates to a program operator quote             |
| [Risk and Exposure](/for-stakers/risk-and-exposure.md)                                       | How monitored risk and diversification bound coverage capacity        |
| [Supported Protocols and Markets](/for-program-operators/supported-protocols-and-markets.md) | How monitored risk gates eligibility                                  |

### Audience

These pages are for readers who want more depth on the methodology: institutional program operators evaluating Firelight's underwriting discipline, capital providers assessing the portfolio risk profile, and partners who need to understand the model well enough to build on it.


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