<t>Expected PV (i.e., time t value) of e(T) is e(t).This maybe gleaned from the BS pricing formula when strike price is driven to 0.As such, C(t) = expected PV of F x e(T) = F x e(t).===================QuoteLet C(T) = F x e(T) = contract payout at future time TwhereF = fixed foreign currency payout ...

<t>Let C(T) = F x e(T) = contract payout at future time TwhereF = fixed foreign currency payout (say, in JPY) at future time, T. . . . . . . .Think zero coupon bond payout. . . . . . . . Present value of F is subject to JPY interest rate risk.e(T) = stochastic USD/JPY exchange rate at time T. . . . ...

Well said. Cheers.

<t>Agree with your definitions, Vegawizard. The problem described goes beyond VaR, one perhaps worthy of an academic paper. The Board mandates that year-to-date trading book losses, if incurred, should not exceed a specified amount, say 2.0bn for the accounting year. Is this a reasonable mandate? Wh...

<t>QuoteOriginally posted by: OblezinQuoteOriginally posted by: aarnedimanReturning to the initial post. Suppose net income budget is 10.0bn, and VaR per day limit is 5% of budget, or 500mn. This scales up to a 1-year VaR limit of 7.9bn (on a 250-trading day year). As such, a 1-year market loss of u...

<t>Returning to the initial post. Suppose net income budget is 10.0bn, and VaR per day limit is 5% of budget, or 500mn. This scales up to a 1-year VaR limit of 7.9bn (on a 250-trading day year). As such, a 1-year market loss of up to 7.9bn would be normal from a VaR perspective. Even a market loss o...

The following benchmarks have been suggested for setting VaR limits:1. 1-day VaR limit = 5% to 10% of Treasury's revenue budget (before operex) for the year2. 1-day VaR limit = 5% to 10% of the bank's net income budget for the year What other benchmarkes are used for setting VaR limits?