You have identified the risks the entity was designed to create through the types of assets it was designed to own, the contracts it was designed to enter into, and the nature of the activities it was designed to conduct.
Variability arises out of risk. The form of this variability is usually a function of the underlying asset, contract or activity. It can sometimes be difficult to delineate one form of risk from another since they are often interlinked. For example, real estate assets creates exposure to market value risk. Real estate prices for similar real estate assets affects the fair value of the entity’s assets. But what drives real estate values? Certainly supply and demand are factors, but another significant factor is the availability of commercially affordable financing. So interest rate risk is ultimately a factor in determining real estate values.
This confusion is why evaluating risk and variability in terms of the entity’s design is critical. An entity formed to own and lease a single real estate asset is probably not designed to create and pass along interest rate risk. It’s designed risks are credit risk (of the lessee) and property value risk (of the underlying assets). Interest rate risk is implicitly present, but it is not one of the risks the entity was designed to create and pass along to interest holders. In this case, variability associated with credit risk is reflected in the cash flows, and variability associated with property value risk is reflected in the fair value of the real estate asset.