What is Market Risk?
Definition of Market Risk: This is an expression that explains the danger that the cost of investment or the trading will go through when it will fall because of the alteration in the cost of specific market danger factors. The four general market danger factors are interest rates, commodity prices, exchange rates and stock prices. In every situation, the danger is regarded as a measure of the force of an alteration in the market cost of volatility in the future market for particular investment vehicle. Several efforts have been invented for standardizing market danger measurement, but all the forms have the possibility for misleading or offer a wrong security sense. Markets involve danger and the wild swings because large number of factors is possible and hard to quantify the prescribed terms. On the other hand, the analysis of probability and statistics has been utilized for such reason. Value at Risk, also known as VAR is a single convention pursued in this consideration. For an offered portfolio, time horizon and probability, Value at Risk explained as the threshold value like that the possibility that mark to the loss on the collection when the time crosses the value, thinking normal market with no trading in such portfolio, for the offered level of probability. Opponents believe that the technique is deceptive and that the statements are defective symbols of actuality.