Specific risk

The concept of specific risk is fairly simple. For any instrument or portfolio of
instruments for which we have modeled the general market risk, we can determine
a residual risk that is the difference between the actual change in value and that
explained by our model of general market risk. Incorporating specific risk in VaR is
a current industry focus, but in practice, most participants use the BIS regulatory
framework to calculate specific risk, and that is what we describe below.