Papers / Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE) 2004,32
Market risks are the prospect of financial losses- or gains- due to unexpected changes in market prices and rates. Evaluating the exposure to such risks is nowadays of primary concern to risk managers in financial and non-financial institutions alike. Until late 1980s market risks were estimated through gap and duration analysis (interest rates), portfolio theory (securities), sensitivity analysis (derivatives) or "what-if" scenarios. However, all these methods either could be applied only to very specific assets or relied on subjective reasoning.