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FX volatility adjustment for risk factors stimulation


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  • Kondratyev, Alexei

    (Standard Chartered Bank)

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    This paper discusses a class of methodological issues that frequently arise in risk management systems such as PFE and CVA engines. Simplified methodology and shortcuts come at a price, sometimes a steep one. To account for model deficiencies and a disconnect between the calibration and the simulation modules, a number of adjustments to the risk factor simulation procedures must be made. As an example, FX volatility adjustment for risk factors simulation is considered. The impact on counterparty exposure numbers is quantified.

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    Bibliographic Info

    Article provided by Capco Institute in its journal Journal of Financial Transformation.

    Volume (Year): 37 (2013)
    Issue (Month): ()
    Pages: 111-116

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    Handle: RePEc:ris:jofitr:1559

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    Related research

    Keywords: FX volatility; risk management; risk management system; PFE engine; CVA engine; FX volatility adjustment; risk factor simulation; counterparty exposure;

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