# Tag Info

## New answers tagged var

2

Apply your trading strategy to history. Convert account equity to USD by applying historical USD/JPY rates. Calculate VAR/returns as usual. Remember, VAR calculated in such a way will underestimate the impact of extreme events: i.e. 95% VAR will return you minimum of what you can lose on 5% trading days.

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Just found some interesting presentation from Morgan Stanley, about SVaR: Stress VaR and Systemic Risk Indicators and short video from OptimalMRM: Stressed VaR. Both helped to grasp differences between VaR and SVaR.

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A CFO typically is not involved in managing risk, though that's not always the case. If your hypothetical CFO is involved in the day-to-day managing of FX risk, the following could be useful: MtM VaR & Stressed VaR Expected shortfall Correlation between traded currency pairs Sensitivities (Greeks) If your hypothetical CFO isn't involved in the ...

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For business purposes, a CFO/CEO typically won't be interested at low-level modeling. Metrics such as: Maximum portfolio gross/net exposure (hence gross/net leverage) Maximum per trade size per product Maximum intraday exposure per product are probably among the more important ones for business decisions.

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Offer rates for options and currency futures. Upcoming publications for economic indicators for short term FX exposure. Future interest rate decisions for long term exposure. Regression for predicting trends. An equation I made for potential risk exposure: x = Days of exposure. p = Current price. delta = Historical daily price changes. Subscript is how ...

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Yes, for a short time horizon like 1 - 10 days, assuming $\mu = 0$ is fine. As you'd correctly pointed out, for 1 - 10 days (and referring to the link you'd referenced to), it scales linearly by $T$ (recall that $T$ is an annual number, so convert to a % number in reference to days), but volatility scales by $\sqrt{T}$ and so it is much larger than $T$ for ...

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The idea of historical VaR is that the chosen historical time frame gives the empirical probability distribution of changes in market variables. Generally each day's changes are equally weighted, but you can choose your weighting arbitrarily. See for example Meucci's Historical Scenarios with Fully Flexible Probabilities.

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VaR gives us an idea of possible losses given our current portfolio and the markets as they are today. The idea behind stressed VaR is to get an idea of possible losses given more worse market conditions. To do this we will "stress" the inputs such as volatilities, interest rates FX rates etc. Thus making them much more unfavorable than they really are.

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The most important difference is that the calculations are based on a "stressed" historical period in the markets as opposed to the most recent X number of years.

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