Market risk models

Abstract

The article is dedicated to a review of models enabling market risk assessment. However, the article is primarily focused on the VaR method. The indicator of potential losses of the VaR (Value at Risk) portfolio is the most popular market risk measure. The VaR concept is not limited to market risk assessment. The VaR idea is not to assess a risk level by an indicator, but to calculate the amount of loss carried by the risk. To date, this indicator is widely used in the private sector. Using the VaR indicator, investors and managers can decide on feasibility of holding a certain type of assets at a given risk level or assess the risk hedge effectiveness.
The article also covers market risk models, such as CAPM and similar APT and Market Model, which assess the risk in relative terms as a proportion of the market portfolio risk. The risk is assessed through a regression analysis.