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Risk Management
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Market Risk Management: A Brief Discussion

by professor Eben Maré, University of Pretoria

Multibillion dollar losses in the financial markets over the last two decades have served to focus companies’ attention on management of market risks. In many cases these losses have arisen from new investment related product innovation or a mere misunderstanding of the risks inherent in a specific new business endeavour involving the financial markets. In this short note we shall aim to present the essential ideas underlying a market risk management programme.

Firstly, what is market risk? Market risk arises by virtue of our income statement or balance sheet changing in value as a result of changes in the values of traded securities, these typically being:

1. Equities,