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I would greatly appreciate if you could let me know whether Value at Risk should be calculated for net open position (foreign currency assets-foreign currency liabilities) or for foreign currency cash?

Could you please introduce me a book regarding Value at Risk measurement in accordance with Basel (including numerical examples)? I already read it.

Thanks in advance.

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Generally, there is no 'right' approach. Bank authorities like to see that your calculations have a sufficient degree of conservatism.

To summarize, you can apply the following:

  1. If you calculate VaR to the gross positions (asset or liabilities) and add them up, you mostly end up with a higher VaR which implicates a higher need for economic capital to be reserved.

  2. If you calculate VaR to the net position, you implicitly assume some portfolio level, which might include diversification effects. This results mostly in a lower VaR (i.e. less economic capital to be reserved), but since this approach is 'less conservative' you have additional effort to proof the stability of the underlying diversification effects.

edit: for numerical examples, see e.g. this one

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