Market risk refers to the risk that the price or value of derivative products will change due to adverse changes or sharp fluctuations in the market price of basic assets. Changes in the market price of basic assets include changes in market interest rates, exchange rates, and quotations of stocks and bonds.
The main method to calculate market risk is value at risk, that is, under normal market conditions and given confidence level (usually 99%), the expected maximum loss of a portfolio in a given holding period. In other words, under normal market conditions and a given holding period, the VaR loss probability of this portfolio is only a given probability level (that is, confidence level).