ABSTRACT
This chapter focuses on market risk, which is defined as the risk of loss due to adverse movements in market prices and constitutes an important part of the overall risk being borne by participants in seaborne shipping. The identification, monitoring and measurement of market risk constitute fundamental steps towards the function of risk management. The landscape of contemporary market risk measurement has been dominated by probabilistic risk metrics as they are more informative when compared to simpler measures of market risk. The Value-at-Risk (VaR) measure expresses in a single number the maximum loss to be sustained in the value of a risky asset over a pre-specified holding period at a specific confidence level. The hybrid historical simulation (HHS), instead of applying equal weights to all past observations, employs a weighting scheme of exponentially declining weights. A common assumption regarding the distribution of financial data is that they belong to a location-scale family of distributions.
