instruments in interest-rate, currency and ... - Volksbank AG

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CALCULATION OF THE CORRELATED VALUE AT RISKAs already mentioned, in the first instance, the volatilities of the risk parameters to the home currency for acertain period of time are calculated.Step 1: Determining the market and value volatilities:Market volatilities per yearVolatilitiesUSDEUR/USD 11%EUR/CHF 3%EUR/JPY 15%Multiplication by the existing sum at risk gives the value volatility, the sum of which then gives the uncorrelatedVaR.Volatilities USD CHF JPY TotalAmount of credit in EUR 3,000,000.00 3,000,000.00 3,000,000.00 9,000,000.00Amount of credit in % 33% 33% 33% 100%Volatilities 11% 3% 15%Value volatility 330,000.00 90,000.00 450,000.00 VaR unkorrZ = 90% = 1.2816 422,911.76 115,339.57 576,697.86 1,114,949.19Value of volatility with 90% probabilityIn the second step, the correlations are determined.Step 2: Determination of correlations:Correlation to EUR EUR/USD EUR/CHF EUR/JPYEUR/USD 100%EUR/CHF -55% 100%EUR/JPY 60% -13% 100%67
The calculation of the correlated VaR is done using the following variance/covariance method formula.Calculation of the correlated value at risk:VaR p = Value at risk of the portfolioVaR n = Volatility values of the components of the portfolioC n = Correlation coefficients of the components of the portfolioValue vol USD 2 108,900,000,000.00Value vol CHF 2 8,100,000,000.00Var USD 2 202,500,000,000.002* Corr EURUSD/EURCHF* Value vol JPY* Value vol CHF 32,670,000,000.002* Corr EURJPY/EURUSD* Value vol JPY* Value vol USD 178,200,000,000.002* Corr EURCHF/EURJPY* Value vol USD* Value vol CHF 10,530,000,000.00Total 454,500,000,000.00Square root = VaR 674,166.15Z = 90% = 1.28155079437419 863,978.17VaR correlated 863,978.17The individual value volatilities are squared and connected to one another with the respective correlations.The sum of the risk factors is multiplied by the confidence level.The square root of the sum gives the correlated value at risk.The risk position improves enormously even in a simple credit portfolio when the correlations are taken intoconsideration. Finding the optimal portfolio is therefore only a question of optimising the portfolio.The volatilities and correlations of the major currencies can be found in Group Treasury’sMorning Mail.THE PATH TO AN OPTIMAL PORTFOLIOThe volatilities and correlations have been determined. We have also found an initial value for the value at riskof our portfolio.Next we want to improve this value by restructuring the portfolio. Based on the above data, a simple exampleshows: With a foreign currency portfolio that is equally distributed with each currency forming 1/3 of theportfolio, we have a VaR of EUR 879,493.12.68
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Group Treasury at Volksbank AG (VBA
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The decision between hedging and po
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FORWARD RATE AGREEMENTSINTEREST-RAT
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Example 2: Liabilities side - from
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In the step-up swap, the nominal am
Page 17 and 18: Transaction in course:A company is
Page 19 and 20: nStep 3: Re-exchange of the princip
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Page 24 and 25: 3M EURIBOR Loan3M EURIBORCompany3M
Page 26 and 27: INTEREST OPTIONSCAPWhat is a cap?A
Page 28 and 29: Termination of a capis possible at
Page 30 and 31: FLOORWhat is a floor?The complement
Page 32 and 33: COLLARWhat is a collar?A collar is
Page 34 and 35: Termination of a swaptionis possibl
Page 36 and 37: CURRENCY MANAGEMENTA large part of
Page 38 and 39: ExampleSought:CHF/JPY-rate determin
Page 40 and 41: Termination of a forward exchange t
Page 42 and 43: Types of optionsPlain vanilla optio
Page 44 and 45: eceives the option premium credited
Page 46 and 47: Participating optionThe participati
Page 48 and 49: ExamplePurchase call option strike
Page 50 and 51: Step payment optionsAs with the con
Page 52 and 53: Knock in / Knock out optionOne of t
Page 55 and 56: with regard to the fixing of prices
Page 57: Energy futures trades * )Table 3Abb
Page 60 and 61: RISK MANAGEMENTEvery company is for
Page 62 and 63: How easily can this risk be elimina
Page 64 and 65: Monte Carlo simulation/Variance/cov
Page 66 and 67: ExampleJPY creditCurrent price 100.
Page 70: The worst risk value would be on a
Page 73 and 74: CALL OPTION Is the right to buy tha
Page 75 and 76: FORWARD/FORWARD See credit forward.
Page 77 and 78: NOMINAL INTEREST RATE The nominal i
Page 79: TRADING Deliberately entering into
Page 82 and 83: International FX practices (key cur
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