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I am wondering what are some of the more important/interesting risk measures to watch, particularly in FX markets. So far I'm watching the following:

  1. Greeks
  2. Tail moves AKA VaR (left and right tail ~ and observing discrepancies)
  3. Rolling VaR, correlations, volatilities
  4. Stress Loss (given certain scenarios)

Any advice would be appreciated.

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For shorter term market risk indicators I believe that watching for signs of systemic stress is a good idea. IV indices (Vix, MOVE (bonds), JP Morgan G10 and EM FX IV), LIBOR-OIS, CDS spreads, forward points (or its inverse, implied yield), Offshore-Onshore yields and cross-currency basis swaps should all feature on a daily risk monitor. No harm watching cross-asset spot and IV as well as action in other asset classes can quickly spread or move concurrently with FX. Longer term watching for signs of fundamental deterioration in countries' external accounts, budget sustainability and fair value via econometric models helps to keep the medium term trend in mind.

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  • $\begingroup$ I would add that monitoring the number of VaR breaches is another good way to watch for signs of systemic stress. (I.e. when a daily move that is supposed to happen once every 20 days is happening very frequently watch out). $\endgroup$
    – Alex C
    Commented Oct 2, 2016 at 12:05
  • $\begingroup$ agreed @Alex C, looking at historical VaR vs. normal standard analytical VaR would also be an indication of abnormality $\endgroup$
    – blueskiess
    Commented Oct 4, 2016 at 22:15

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