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FX volatility adjustment for risk factors stimulation




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.

Suggested Citation

  • Kondratyev, Alexei, 2013. "FX volatility adjustment for risk factors stimulation," Journal of Financial Transformation, Capco Institute, vol. 37, pages 111-116.
  • Handle: RePEc:ris:jofitr:1559

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    More about this item


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

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage


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