Market Risk

Analyze and manage market risks

Market risk is the potential for a loss in value of an investment portfolio when prices drop due to sources of systematic risk, or changes in risk factors that affect the entire market or market segments.

Market risk is commonly measured and communicated as Value at Risk (VaR), or the amount of a portfolio that is at risk of loss over a specified timeframe. For example, for a one-month 5% VaR of $1 million in a portfolio, there is a 1 in 20 chance of losing $1 million over a month’s timeframe. Determining a portfolio’s VaR is a complex process. Many financial risk managers employ sophisticated models to analyze, rank, and decide on appropriate strategies for managing market risk.

Leading financial institutions use MATLAB to build models and manage market risk. You can use Financial Toolbox to build customized models, perform Monte Carlo simulations, and analyze various scenarios to asses risk exposure arising from financial activities exposed to market risks.

Examples and How To

• Using MATLAB to Optimize Portfolios with Financial Toolbox (Webinar)
• Risk Management and Value-at-Risk Implementation with MATLAB (Webinar)
• Energy Trading and Risk Management (Webinar)
• Predicting Financial Crises in Emerging Markets (User Story)
• A2A Develops Comprehensive Financial Risk Management Solution (User Story)
• Horizon Wind Energy Develops Risk Management Tools for Wind Farms (User Story)
• Capgemini Helps Clients Achieve Basel II Compliance with MATLAB (User Story)
• Capital Asset Pricing Model with Missing Data (Example)
• Risk-Adjusted Returns (Example)
• Performance Metrics and CAPM (Example)

Software Reference

• CAPM - Capital Asset Pricing Model (Documentation)
• Calculate Risk-Adjusted Alphas and Returns (Function)
• Mean-Variance Efficient Frontier (Function)
• Portfolio Object (Function)
• Bagged Decision Trees (Function)

See also: risk management, Monte Carlo simulation, liquidity risk, energy trading and risk management, credit derivatives