Market risk
Market risk is the risk of losses in positions arising from movements in market prices.
There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most commonly used types of market risk are:
Equity risk, the risk that stock or stock indices (e.g. Euro Stoxx 50, etc. ) prices and/or their implied volatility will change.
Interest rate risk, the risk that interest rates (e.g. Libor, Euribor, etc.) and/or their implied volatility will change.
Currency risk, the risk that foreign exchange rates (e.g. EUR/USD, EUR/GBP, etc.) and/or their implied volatility will change.
Commodity risk, the risk that commodity prices (e.g. corn, crude oil) and/or their implied volatility will change.
Margining risk results from uncertain future cash outflows due to margin calls covering adverse value changes of a given position.
Shape risk
Holding period risk
Basis risk
Risk management
All businesses take risks based on two factors: the probability an adverse circumstance will come about and the cost of such adverse circumstance.
Risk management is the study of how to control risks and balance the possibility of gains.