Market Risk
Market risk is the risk that market prices move. Sample positions for the 5-year treasury trading book from Chapter 12 are given in Box 13.2.
Box 13.2 Calculating a 5-year treasury trading book end of day position
- Trader owns $400 million at 100–16 at the start of the day
- Trader sells $1 billion at 100–17 to PACAM
- Trader buys $700 million at 100–16+ from the prop trading desk
- Net position: Long $100 million at the end of the day
Calculating value at risk for one day on today’s position
- Current end of day position: +$100 million
- 1 day 95% price change possible: 0.2%
- Value at risk: $200,000
The classic assessment of market risk is value at risk, or VaR, introduced in Chapter 12. This is a calculation to figure out what the ...
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