1. Market Risk In financial management, market risk refers to the loss experienced by individual investors or a firm due to changes in the factors affecting the financial market. The primary source of market risk changes is the interest rate, economic recession, political turmoil, disasters and terrorist attacks. The financial markets are inflation rate, interest rate, exchange rate etc. This variable can affect the return of the portfolio. So, the market risk mainly comprises interest rate, exchange rate, equity, and commodity risk (CFA Institute, 2022). The market risk is systematic since it can affect every sector in the market. So we cannot avoid such risk through diversification of investment. However, it cannot be hedged by employing some other techniques. Since the market is unpredictable, we cannot use a single model to predict the market risk. Most financial institutions employ Extreme Value Theory (EVT) to forecast fluctuations in the market (Koch and MacDonald, 2006). Genera...
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