Concept of VAR explained through a simple calculation in EXCEL

1. hisham's writing pad/risk metrics /FX
CALCULATING VAR FOR A SNGLE
CURRENCY PAIR
BASEL III
Requires a stressed VAR
At a 99% Confidence Interval
And over time Horizon of 10 days

2. hisham's writing pad/risk metrics /FX

3. hisham's writing pad/risk metrics /FX
Steps to calculate VAR
● Take 30 days of FX EUR/USD data from say Oanda.com
● Calculate log normal price returns daily using excel function LN()
● Calculate the period standard deviation using excel function
STDEV
● Now calculate daily STDEV using square root rule
● Next determine value for required Confidence Interval using
NORMSINV function
● Set Horizon at 10 days
● Now calculate VAR = Exposure x daily STDEV x root of 10 x
value returned by NORMSINV function for a CI of 99%