88 Estimate of Capital Requirements According to Market Risk Juan Pablo Arango Mauricio Arias Esteban Gómez David Salamanca Diego Vásquez , Introduction Entities and regulators alike are becoming more interested in measuring and the market risk (MR) associated with the trading book 1 , given the growing share of investments comprising the financial system’s assets. The Office of the Superintendencia Bancaria (Banking Superintendency) 2 in Colombia took an initial step in this direction in January 2002 when it set capital requirements based on MR. Nevertheless, this Law has come under fire lately, particularly concerning the suitability of the method used to measure and hedge exposure properly. In this respect, the objective of the present article is to present the results of MR estimates based on alternative methods for comparing and evaluating the usefulness of current requirements. The calculations presented herein refer to the standard model proposed by the Basel Committee and to the value-at-risk (VaR) models included in both the historic simulation method and the variance and covariance-based technique (EWMA approach) proposed by RiskMetrics. I. Methods For Calculating Value-At-Risk The concept of value-at-risk plays a fundamental role in all the methods presented in this article, as well as in current regulation. This measure of risk is an attempt , Members of the Financial Stability, Operations and Market Development Departments and the Econometric Unit. The opinions expressed herein are solely those of the authors and imply no commitment on the part of Banco de la República or its Board of Directors. 1 The trading book is the portfolio of positions maintained by the bank to derive benefits from their short-term purchase and sale. 2 Now part of the Superintendencia Financiera.