Market Risk

The risk of loss from moving prices — and the family of measures, from VaR to Expected Shortfall, that put a single, comparable number on it.

01Value at Risk02Expected Shortfall03The Greeks04Stress testing

01Overview

Market risk is the risk of loss from movements in market prices. This hub covers how it is measured — from Value at Risk to stress testing — and how desks keep it within appetite.

How it works

Market risk is the risk of loss from moves in prices, rates, volatility and spreads. It is measured in a few complementary ways: Value at Risk (VaR) — the loss a portfolio is unlikely to exceed over a set horizon at a given confidence — and, increasingly, Expected Shortfall (ES), the average loss in the tail beyond VaR, which captures extreme outcomes more prudently. Alongside these sit sensitivities (the “Greeks” — delta, gamma, vega, etc.) that show how value responds to each risk factor, and stress testing / scenario analysis that asks what happens under specific shocks rather than statistical averages.

VaR marks the edge of the tail — Expected Shortfall measures its depth

Schematic. VaR answers “how far in does the worst 1% begin?”; Expected Shortfall answers “once you’re in that tail, how bad is it on average?” — the reason Basel moved the capital standard from VaR to ES.

In practice

For banks, market-risk capital is set by the Basel Committee’s Fundamental Review of the Trading Book (FRTB), introduced after the 2008 crisis. Its headline change is a shift in the regulatory measure from VaR at 99% to Expected Shortfall at 97.5%, to better capture tail risk, plus liquidity horizons that recognise some positions take longer to exit. Firms run VaR/ES daily, backtest the models against actual P&L, and manage exposure to board-approved limits and risk appetite — the discipline the RiskMaverick VaR calculator on the Tools page illustrates.

02Key methods

Value at Risk (VaR)

A loss threshold at a set confidence and horizon — comparable across desks, but silent about the tail beyond it.

Expected Shortfall (ES)

The average loss in the worst tail; coherent and tail-sensitive, now the Basel capital standard.

Sensitivities (the Greeks)

Delta, gamma, vega and the rest — how value responds to each individual risk factor.

Stress & scenario testing

What specific shocks, rather than statistical averages, would do to the book.

The rule that changed the measure

The Basel Committee’s Fundamental Review of the Trading Book (FRTB) shifts the regulatory standard from 99% VaR to 97.5% Expected Shortfall, and adds liquidity horizons that recognise some positions take longer to exit.

Sources & credits

Standard-setting and primary sources. Links open the original publication.

Minimum capital requirements for market risk (FRTB) Standard-setter: The global bank-capital standard-setter · bis.org
Explanatory note on the minimum capital requirements for market risk Primary: Official explanatory note · bis.org
Revised framework for market risk capital requirements (press release) Authoritative: Primary summary of the reform · bis.org

Editorial Sourced from standard-setters & primary texts Reviewed: 8 Jul 2026

Try it on the Tools page

The RiskMaverick VaR & Expected Shortfall calculator lets you move the confidence level and watch the tail.

Open the tools →