The document outlines the steps to calculate the Value at Risk (VaR) for a single currency pair according to Basel III requirements. It specifies calculating a stressed VaR at a 99% confidence interval over a 10 day time horizon. The steps include taking 30 days of FX data, calculating log normal returns and standard deviation, determining the confidence interval value, and using the exposure, standard deviation, time horizon, and confidence interval value in the VaR calculation formula.

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%