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antaragini
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Posts: 33
Joined: March 22nd, 2012, 7:22 pm

Probability of peg break

April 12th, 2019, 10:27 am

I am trying to calculate VaR using historical time series for FX CCY pairs that are pegged or managed float. Can you suggest how can I quantify and incorporate probability of peg breaking (given that it is a rare event).  
 
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bearish
Posts: 4633
Joined: February 3rd, 2011, 2:19 pm

Re: Probability of peg break

April 12th, 2019, 12:52 pm

The old peso problem... The answer is most likely that you cannot get useful results from the time series of the individual currency pairs you care about. Maybe look at a very long time series of a large number of exchange rates and estimate some general frequency of breaks, perhaps conditional on the amount of carry on offer? Or, if you have access to option prices, try to imply a jump intensity parameter?
 
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ISayMoo
Posts: 1721
Joined: September 30th, 2015, 8:30 pm

Re: Probability of peg break

April 13th, 2019, 12:20 pm

It's a rare large event dependent on political decisions. Your best best is to call the head of their central bank and offer $$$ for insider knowledge ;-)

IOW: I doubt you can do a lot of prediction here.
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