Market risk
Risks arising from movements in market variables / From Wikipedia, the free encyclopedia
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Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility.[1] There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most commonly used types of market risk are:
- Equity risk, the risk that stock or stock indices (e.g. Euro Stoxx 50, etc.) prices or their implied volatility will change.
- Interest rate risk, the risk that interest rates (e.g. Libor, Euribor, etc.) or their implied volatility will change.
- Currency risk, the risk that foreign exchange rates (e.g. EUR/USD, EUR/GBP, etc.) or their implied volatility will change.
- Commodity risk, the risk that commodity prices (e.g. corn, crude oil) or their implied volatility will change.
- Margining risk results from uncertain future cash outflows due to margin calls covering adverse value changes of a given position.
- Shape risk
- Holding period risk
- Basis risk
The capital requirement for market risk is addressed under a revised framework known as "Fundamental Review of the Trading Book" (FRTB).