Market Risk

What this calculator does

This calculator implements the diversified Market Risk module within the standard formula. It combines interest rate, equity, property, spread, currency, and concentration risk into the market term used in BSCR^[1][2].

Input terms

• Interest Rate Risk: The change in net asset value under the more adverse of the prescribed upward and downward yield-curve stresses^[3].
• Equity Risk: The loss from the prescribed equity-market shocks across the standard-formula equity categories, including the symmetric adjustment overlay^[4][5].
• Property Risk: The change in net asset value following the prescribed property shock applied to direct property exposures^[6].
• Spread Risk: The loss from spread widening on bonds, structured products, and credit derivatives, measured through regulatory factors rather than undertaking-specific spread modeling^[7].
• Currency/FX Risk: The adverse movement produced by stressing foreign-currency positions against the reporting currency^[8].
• Concentration Risk: The capital charge for excessive exposure to a single name above the regulatory thresholds^[9].

Calculation

The six market sub-modules are aggregated through the standard-formula market correlation structure because they share macro-financial drivers but are not assumed to move in perfect lockstep^[1]. The standard formula also treats some market relationships differently across scenarios, most notably the interaction between interest-rate and equity stress, and it keeps currency and concentration features on their prescribed regulatory treatment rather than allowing undertaking-specific dependence assumptions^[1][7].

Important notes

• The equity symmetric adjustment matters.: EIOPA's monthly adjustment can reduce or increase the base equity shock and is designed to limit pro-cyclical capital movements^[5].
• Look-through still applies to funds.: Holding risk through a collective investment wrapper does not remove the need to allocate the underlying exposures to the relevant market sub-modules^[7].
• Concentration risk remains idiosyncratic.: It captures large single-name exposure rather than a broad systematic market factor^[9].
• Reporting: The market-risk result is intended to align with the market-risk portion of the Solvency II QRT package, including the S.26 family of breakdowns^[10].