Market Risk Models

Market risk models are tools used by financial institutions to estimate potential losses from changes in market prices, such as stocks, interest rates, or currencies. They analyze historical data and current market conditions to predict how much a portfolio's value might decline under adverse scenarios. These models help institutions manage and prepare for uncertain market fluctuations, ensuring they maintain sufficient capital and reduce the risk of significant financial setbacks. Essentially, they provide a systematic way to assess and control the exposure to market volatility.