Market Risk

Market risk is the risk of losses in on- and off-balance-sheet positions arising from movements in market prices. It is the most quantified and standardised risk category in modern banking, with three decades of regulatory frameworks and a mature tool ecosystem. The discipline spans linear risks (delta-equivalent exposures to rates, FX, equity, credit, commodity) and non-linear risks (gamma, vega, vol-of-vol, correlation risk) across vanilla and exotic derivatives, structured products, and securitised positions.

Value at Risk (VaR) remains the most widely reported headline number, expressing the maximum loss at a given confidence level over a defined holding period. The standard convention is 99% / 10-day, though 95% / 1-day is more common for internal risk management. The three principal VaR methodologies parametric (variance-covariance), historical simulation, and Monte Carlo each have characteristic failure modes. Parametric VaR assumes normality and breaks down in fat-tailed markets; historical simulation is anchored to the realised window and misses regimes not present in the sample; Monte Carlo is flexible but model-specification dependent.

Conditional Value at Risk (CVaR, also Expected Shortfall) addresses VaR's tail blindness by averaging the losses beyond the VaR threshold. CVaR is a coherent risk measure (sub-additive), making it suitable for portfolio aggregation. It is the standard FRTB capital metric at the trading-book level, and is increasingly used in market risk limits. Both VaR and CVaR are produced in TQH TERMINAL across all asset classes with full decomposition by risk factor.

Sensitivity measures (Greeks for options, PV01/DV01 for rates, FX delta/gamma, credit CS01) remain the primary risk management tool because they are interpretable and actionable for traders. TQH TERMINAL provides real-time greeks across the full instrument universe, supports scenario revaluation for non-linear products, and aggregates sensitivities up the organisation by book, desk, and asset class. Stress testing complements VaR by capturing events the historical or parametric models miss the platform provides both prescribed regulatory stresses and a library of historical and hypothetical scenarios.

Beyond calculation, market risk management is about decision support. TQH TERMINAL integrates risk with P&L attribution, allowing traders and risk managers to decompose daily P&L into market moves, new deals, carry, and theta. The platform's limit-management framework tracks utilisation against notional, VaR, and sensitivity limits, generates breaches in real time, and supports escalation workflows to senior management.