New methods to predict market risk could revolutionize financial stability.
This chapter discusses numerical methods for measuring market risk in financial institutions, focusing on value-at-risk. The Basel Accord sets international guidelines for risk management, with value-at-risk being a key metric. Market risk arises from uncertainty about future investment values, which are influenced by various risk factors. Three models for risk factor distributions are explored: normal random walk, asymmetric Student's t-distribution, and nonparametric density estimator by Parzen.