It is defined as the potential loss resulting from declining prices in the financial market.It includes stochastic market risk factors: Interest Rate, FX, Commodity and Equity.There are two drivers of the market risk exposures: Investment Position and Market Volatility (σ).
– Market Risk Management works through several steps including:
– Market Risk Factors Identification
– Sensitivity analysis
– VaR for Market Risk: Riskmetrics (JP Morgan) 94
– Stress Testing and Scenario Analysis
– Economic Capital Adequacy Level
Reference: www.caa.com.bb/files/Aaron_Hou.pdf
The Risk Analyst 