Market risk

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The market risk (also market price risk or market price risk ; English market risk ) is a financial risk that a market participant incurs due to negative changes in the market value or other market data on a market .


The market risk is one of the most important corporate risks and is associated with a threat from future market developments that can consist of price and volume risks . Market risks are inherent in every stock ( portfolio ) and describe the risk that results from holding a portfolio. The market risk consists in the risk of loss or the chance of profit that the market data may develop negatively or positively to the detriment or in favor of a business entity ( companies , private households or the state ) and lead to a loss or profit .


William F. Sharpe (1964) and John Lintner (1965) developed the capital goods price model (CAPM), which divides the overall risk of an inventory or a financial investment into systematic and unsystematic risk . The systematic risk describes that part of the overall risk that results from the market development. This systematic risk is often referred to as market risk in the narrower sense. It arises from changes in external market data such as prices , interest rates , exchange rates , economic risks , country risks , economic shocks , legal effects such as consumer protection , taxes , as well as wars , natural disasters , political risks, environmental change , demographic trends or technological progress . All market participants and all trading objects are equally subject to systematic risk . It cannot be diversified , but rather reduced through strategies to preserve value (such as buy and hold , stop loss ). With him acting beta coefficient (β-factor) as a measure of the volatility of a particular trade object compared to the volatility of the relevant market as a whole.

The unsystematic market risk concerns the individual risk of a special trading object, the cause of the risk is always based on itself. Other commercial objects in the same market are not affected. For unsystematic risk, for example, include incorrect decisions of management such as wrong product policy or poor cost management . This also includes the credit risk of a particular bond , the credit risk of a loan , the customer loan and accidents . It can be diversified by building a portfolio.


For German stocks , the systematic market risk is the risk of a general price decline, which can be measured, for example, by the decline in the DAX as the leading index. The unsystematic market risk, on the other hand, results from changes in individual market prices (e.g. a single share price ) that are independent of general market movements ( residual risk ). The unsystematic risk can consist in the fact that the company data of a certain stock corporation has developed negatively and lead to a fall in the price of this share.

In the case of bonds , the systematic market risk consists, for example, in a change in the level of interest rates, which affects all bonds. The unsystematic interest rate risk forms that part of the interest rate risk that arises from the individual issuer or the individual issue . A major driver of the unsystematic interest rate risk is the creditworthiness of the issuer. Thus, the unsystematic interest rate risk of a bond is its credit risk in the form of a market price risk , which is expressed in the credit spread (“spread”) on a risk-free interest rate .

The concept of option price risk is a special case, which includes all risks resulting from trading in options . In addition to the risk of a change in the price of the underlying asset (which is a special form of equity risk in the case of an equity option, for example ), options are particularly exposed to the risk of changing volatility ( volatility risk ).

An investor can only avoid market risk by not buying risky securities. Since the market risk cannot be diversified, investors usually receive a risk premium for this .


Market risk in non-banks includes the current and potential success or failure of a company . Market share , market volume , market growth and market potential harbor market risks. They include changes in the competitive conditions on the procurement and sales markets. The specific market risk of non-banks consists in the fact that their own corporate goals cannot be achieved in the procurement ( raw materials , consumables and supplies ) and sales markets ( finished products , semi-finished products ) . This is the case, for example, if the raw materials required for production cannot be purchased in whole or in part, or only at unexpectedly higher prices, or if the company's own products / services cannot be marketed in whole or in part, or only at lower sales prices than planned . The procurement risk can be reduced or eliminated through hedging ( derivatives , warehousing ), the use of substitute goods or increased bargaining power with suppliers . The sales risk can consist of the fact that the demand cannot or not completely be met ( quantitative market risk ), the product quality does not meet customer expectations ( qualitative market risk ), the wrong target group ( local market risk ) or the wrong marketing time ( temporary market risk ) has been selected. This sales risk can be reduced, for example, through market research and market analysis , forward transactions ( forward exchange transactions for exports in foreign currencies ) or an increase in the relative market share ( BCG matrix ). The highest market risk is therefore in the market launch of product or financial innovations for which there is no market share and the market potential is difficult to predict.


In terms of the banking industry , market risks are the risks of loss that can arise from market movements in financial market risks.


Credit institutions and other financial service institutions are active in the particularly volatile financial markets ( money market and capital market ). The market-specific characteristics of the market risk include the interest rate risk (changes in the market interest rate on interest- bearing risk positions ), price risk (for securities such as stocks , bonds ), currency risk ( open foreign currency positions and appreciation and depreciation risk ), raw material ( commodities ) risk, concentration risk ( cluster risk , Granularity ) and spread risk ( default and credit risk , issuer risk , counterparty risk ). When commodities and precious metals are traded on secondary markets , there may be less market liquidity , which can increase volatility and thus market liquidity risk . Some authors add the refinancing cost risk to the market risks .

Banking regulatory law

The market risk inherent in financial institutions remained legally ignored for a long time. It was not until Principle Ia , enacted in August 1974, that from October 1990 market and interest rate risks from off-balance sheet transactions should be taken into account . Even Basel I in July 1988 brought worldwide from December 1992 to credit institutions only a securitization of credit risks with own funds . An additional backing of market risks was only issued in January 1996 (“Basler Marktrisikopier”) and was to be applied from December 1997. This included interest rate, share price, foreign currency and precious metal risks.

After § 25a para. 1 KWG in December 2012 by the BaFin adopted minimum requirements for risk management (BA) concrete in BTR 2 that must be performed in banks CONSTRUCTION and process organization arrangements. According to this, market price risks may only be taken if limit systems have been set up for this. A quarterly risk report must be prepared on the existing market risks (BTR 2.1).

The Capital Adequacy Ordinance (CRR), which has been in force in all EU member states since January 2014 and regulates market risks in addition to credit risks and operational risks, provides systematic and detailed operational requirements . According to Art. 325 ff. CRR, market risks are to be backed with own funds. In Art. 290 (5) CRR, the most important market risk factors are interest rates, exchange rates, shares, credit risk spreads and commodity prices.


As with credit risks and operational risks, the Capital Adequacy Ordinance (CRR) offers the standardized approach ( market risk standard approach , abbreviated MRSA) for the specific market risk in the trading book and, according to Art. 363 CRR, also permits bank-internal models that require authorization, provided they are validated (Art. 369 CRR). Own funds are only to be held for net positions, i.e. for the difference between long and short positions (see long and short ) for each underlying (Art. 327 CRR). Derivative financial instruments - for example interest rate futures and interest rate swaps - are treated like securities (Art. 328 CRR). Foreign currency and precious metal risks are only to be taken into account if their net position exceeds a threshold of 2 percent of equity. When determining these net positions, a quantile of the loss function, the value at risk, is to be used as a risk measure - the term was established specifically to control market risks and is often viewed in finance as a synonym for market risk itself. The measurement is based on the asset and liability positions of the bank balance sheet , which allows open positions to be identified. The book value of receivables and liabilities provides information about the amount of future payments . Derivatives are not recorded in the balance sheet, but still have to be included in the net positions. Option transactions are recorded using the delta factor (Art. 278 (2) CRR).

By considering the market risk, it can happen that a transaction has to be backed cumulatively with own funds. A foreign currency loan , for example, consists of both an exchange rate risk (due to the currency risk ) and the borrower's credit risk , both of which - independently of one another - must be backed with own funds.

According to Implementing Regulation (EU) 680/2014, since April 2014 the banks have been transferring the data collected to reporting forms for market risks, which also contain the report for the risk of a credit rating adjustment (CVA).

Insurance industry

The insurance industry's market risk arises from its function as a capital collection point . In the insurance industry, market risks are understood to be the risks of the investment of security assets resulting from the volatility of the capital markets , which are similar to the market risks of the banking industry. But it is not only the assets on the balance sheet that are affected by the market risk in insurance companies; further market risks also arise from changes in the discount factors in property insurance and from guaranteed guarantees and possible profit sharing in life insurance on the liabilities side .


In accounting , the market risk according to IFRS 7 consists of three sub-risks:

All financial risks occurring in a market can be assigned to one of these three sub-risks.

Individual evidence

  1. Armin Töpfer, Anja Heymann: Market Risks . In: Dietrich Dörner, Péter Horváth, Henning Kagermann (eds.): Practice of Risk Management . 2000, p. 227 .
  2. Jürgen Kantowski: Use of real options in investment controlling using the example of biotechnology . 2011, p. 50 ( limited preview in Google Book search).
  3. Fred Wagner: Gabler Insurance Lexicon . Gabler, 2011, ISBN 978-3-8349-0192-7 , pp. 673 .
  4. Thorsten Schmitz, Michael Wehrheim: Risk Management . 2006, ISBN 3-17-019330-9 , pp. 36 ( limited preview in Google Book search).
  5. Thorsten Schmitz, Michael Wehrheim: Risk Management . 2006, ISBN 3-17-019330-9 , pp. 38 .
  6. Herbert Strunz, Monique Dorsch: Management in an international context. With 40 case studies . 2nd Edition. Oldenbourg Verlag, Munich 2009, ISBN 978-3-486-59058-6 , p. 264 ( limited preview in Google Book search).
  7. Hannes Enthofer, Patrick Haas: Asset Liability Management / Overall Bank Control . Linde Verlag, Vienna 2016, ISBN 978-3-7143-0262-2 , pp. 95 ( limited preview in Google Book search).
  8. Hannes Enthofer, Patrick Haas: Asset Liability Management / Overall Bank Control . Linde Verlag, Vienna 2016, ISBN 978-3-7143-0262-2 , pp. 97 .
  9. Daniela Uhlmann: Value-at-Risk based risk management for the assessment of market risks . 2014, ISBN 3-95684-388-6 , pp. 6 .
  10. Michael Auer: Methods for the quantification of market price risks. An empirical comparison . In: Hermann Locarek-Junge, Klaus Röder, Mark Wahrenburg (eds.): Financing, capital markets and banks . tape 16 . Lohmar / Cologne 2002, ISBN 3-89012-986-2 , p. 14 .
  11. ^ Olaf Fischer: General banking management . 7th edition. Springer Gabler, 2014, ISBN 978-3-8349-4666-9 , pp. 29 ( limited preview in Google Book search).
  12. Gerlach Schreiber: Solvency II: Basics and Practice . 2016, p. 37 .
  13. Helmut Gründl, Helmut Perlet (ed.): Solvency II & Risk Management: Upheaval in the Insurance Industry . Gabler, 2005, ISBN 978-3-322-82234-5 , pp. 275 ( limited preview in Google Book Search).
  14. Jürgen Stauber, Financial Instruments in IFRS Financial Statements from Non-Banks , 2012, p. 348